Investment Column: Ignore Wetherspoon's weather worries
Character Group; Oxford Biomedica
Thursday 21 January 2010
Our view: Hold
Share price: 463p (-0.7p)
Stories about pub closures seem to crop up every few weeks. JD Wetherspoon is an exception, continuing to open new outlets. That's a refreshing change, although not as refreshing as a cool pint of lager at one of its outlets on a warm day. Unfortunately for the company the weather has been cold, really cold, and as a result, people have stayed at home, relying on the supermarkets for their tipples even more than usual.
Which is a shame, because prior to the cold snap, Wetherspoon's was doing rather well, with sales on a rising trend. Just look at the numbers. For the first 10 weeks of the second quarter (to 3 January 2010), sales excluding those from new openings increased by 1.0 per cent, compared to 0.3 per cent growth in the first quarter (to 25 October 2009). Total sales for the same period increased by 5.3 per cent, compared to 4.5 per cent in the first quarter
However, for the quarter's full 12 weeks, sales decreased by 0.3 per cent excluding new openings. Total sales increased by 3.7 per cent.
But that should not detract from the overall investment case, which remains as strong as any in a sector which is struggling. The company's debt mountain of £435m remains a concern but talks over re-financing are "progressing well". It needs to be reduced (so no dividend) because the terms are likely to be tighter this time around thanks to the credit crunch. All the same, if you strip out the weather, the company is presenting an encouraging picture of its operations.
We've said before that Wetherspoon is the quality play in the sector and the shares deserve a premium. That said, at 12.8 times forecast 2010 full year earnings, they are hardly cheap. Last time we looked at the company (in May) we said hold at 447.25p and they've risen slightly since then. The shares are too pricey to recommend buying more, but the company is doing well, so stick with it. Hold.
Our view: Buy
Share price: 78p (+3.5p)
According to the much-loved theme tune, Postman Pat thinks he's a very lucky man. Shareholders in Character Group, which owns the rights to make toys of the Greendale postie and his sidekick Jess, may not feel quite so felicitous.
Character designs, develops and distributes toys, games and gifts to 30 countries around the world. Also on its roster are Fireman Sam, Scooby Doo and, um, the Terminator. In its recent history the AIM-listed stock has suffered a few bumps, falling from above 200p in October 2007 to as low as 23p early last year as the collapse of Woolworths shook the business.
The group put out a positive update yesterday, shaking off an 8.5 per cent fall in the toy market in 2009, as it posted a 1.2 per cent boost in the first four months of its financial year. After giving its products a facelift, management expects a significant turnaround in pre-tax profits in the first half of 2010.
The optimism drove analysts at Charles Stanley to upgrade full year estimates from £2m to £3.5m yesterday. With a price to earnings ratio of 6.6 times 2012 earnings per share, this looks awfully cheap, although much depends on the success of new products such as the latest Doctor Who range. Certainly, the Terminator full head mask and voice changer is a winner (and great fun for terrifying friends and family), and this year the shares – to paraphrase the original Arnold Schwarzenegger movie – might well be back. Buy.
Our view: Buy
Share price: 12p (+0.25p)
There was a time, not too long ago, when analysts used to say that Oxford Biomedica was like an onion: peel away the various layers, and ultimately you're left with little.
But things are changing for the AIM-listed gene therapy group. Yesterday it announced that UshStat, a treatment for Usher Syndrome, a rare but nonetheless nasty genetic disorder that leads to deafness and blindness, has been granted so-called orphan status by the European regulators. The move grants the company 10 years of marketing exclusivity, and reduces regulatory fees in the future.
Small biotech companies depend on a strong flow of news to get investors excited, especially as they are likely to be asked for more money in the future to fund research, while the notion of a dividend is laughable.
UshStat is the second of its treatments to be granted orphan status in the last six weeks after Stargen, a potential drug for treating Stargardt's disease, was similarly approved. The share price has responded in kind, putting on nearly 50 per cent in the last 12 months alone. Investors should not get carried away. Biotech is, and always will be, one of the most high risk sectors, but you could do worse than to back Oxford Biomedica. Buy.
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