Investment Column: Hunting for a profit? Buy this while cheap

Hunting

Our view: Buy

Share price: 543.5p (+36.5p)

Hunting is doing a good job in a tricky environment. According to yesterday's trading update, the FTSE 250-listed oil and gas services company will come in at the high end of market expectations in 2009, "despite recessionary global markets, volatile commodity prices and depressed drilling activity, primarily in natural gas".

The real struggle this year has been the US and Canada, where unusually low prices put drilling and exploration activity of all kinds on ice and left smaller players struggling to raise funds. Hunting has suffered from some exposure in North America, and its activities have been sluggish compared with 2008. But the group's business in the Middle East and South-east Asia has remained on track, and it has fine prospects for 2010.

Dennis Proctor, the chief executive, is expecting a 6 per cent boost in exploration and production next year. "Much of this improvement is due to oil demand growth in China, India and other South-east Asian countries, while the rest of the world may see only modest, if any, growth," he said.

The group has made some targeted acquisitions, with Indonesia's PT SMB Industri boosting its presence in the fast-growing South Asian region and the recent purchase of Welltonic set to expand the strongly performing Well Intervention division.

Keith Morris, an analyst at Evolution Securities, is certainly convinced. "If 2009 acquisitions also make their impact on revenue and profits, then our 2010 earnings-per-share forecast of 16.5p could look too low, and therefore the undemanding ex cash price-to-earnings multiple of 13.3 times could look even cheaper," Mr Morris said yesterday.

We agree. The US gas price has already doubled from its September low, and economic recovery will help to further pull up the North American industry next year. Hunting is well-positioned to make the most of upturns in both developed and developing economies. Buy it while it's cheap.



DCD Media

Our view: Buy

Share price: 9.75p (+0.75p)

DCD's had something of a torrid time this year, not surprising really given the environment for media generally and that for TV production in particular. But there are grounds for thinking that there is the potential for rich rewards for those willing to take a punt on the shares, which are currently sitting in a bit of a trough.

What makes DCD stand out is that not only does it produce programmes, it can call on a private equity-backed fund to help finance them (a big deal this in the current climate) and in return gets the international rights to itself. It also has a DVD label, a publisher and a merchandising arm. So when it gets a hit, DCD can capitalise on every aspect of what goes with it.

And despite the difficult climate, DCD has still managed to turn out its fair share of earners, ranging from the quality (Stephen Fry in America) to the cringeworthy (Bridezillas in the US).

It is on the US that the group is pinning hopes for the future, given the difficult climate on this side of the pond, and the market got the point, marking up the shares yesterday.

Although it does offer services to third parties (distribution, etc) DCD's success will largely depend on a continued flow of hits, something that can never be banked upon. But things appear to be moving in the right direction, and the company should produce a "clean" profit next year. This is a high risk call, but we say "buy".



Dawson Holdings

Our view: Avoid

Share price: 7.75p (-0.5p)

There was certainly no attempt to sugar coat the annual results by the magazine distributor Dawson Holdings. The group admitted that 2009 was "undeniably torrid" and "clearly an horrendous year" as its shares have plunged from about a pound into penny stock territory.

The group was also forced to sell assets from its collapsed distribution business to bitter rivals. Yesterday it revealed that pre-tax profits had pretty much halved to £1.8m.

Yet there seems to be some improvement. The remaining businesses are profitable, and the group's shares soared last week as it agreed new banking facilities with GE Capital and Barclays. Management said the new financing agreement should provide the headroom to rebuild the group. Hugh Cawley, who replaced Peter Harris as chief executive in June, said the group was "reasonably placed" to capitalise on a recovery "when it occurs".

Presumably that's not in 2010, which Dawson thinks will continue to be a tough year. We concur with this.

There won't be a dividend for a while and while there could be some light at the end of the tunnel we would advise steering clear until it becomes more visible. Avoid for now.

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