Investment Column: Impressive SSL is a safe bet in the recession

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The Independent Online

Our view: Buy

Share price: 450p (-0.5p)

Garry Watts, chief executive of SSL International, the group behind Durex condoms, says he would not swap places with 90 per cent of bosses at other companies. With SSL announcing in its full-year trading statement yesterday that its 2008 numbers will smash most analysts' expectations, and with a share price that is almost on a par with where it was this time last year, it is tough to imagine what sort of companies the 10 per cent are running.

It is an obvious point to make but during a recession, cash-strapped consumers are likely to spend more time at home in an effort to save money. For companies such as SSL the benefits of a downturn are clear, and while Mr Watts will not say that his business is immune from the recession, he does concede that it is in a better position than most.

With the impressive share price performance over the last year, potential investors may be forgiven for assuming that they have missed the boat. It is true that the stock is not cheap, but trading on 12 times 2010 earnings, there is room for growth, say the experts at Cazenove, who reckon that the shares will continue to outperform the market.

Mr Watts agrees, and points to the group's recent acquisition of BLBV, a Russian condom maker, as well as its "Play O" range of sex toys and massage oils, as areas of the business he expects to drive growth in the coming year.

With condom sales up 20 per cent in the last 12 months, we think that the group is a solid, defensive buy in these markets. SSL will report an increase of 30 per cent in operating profit in May, and that is despite some softening in some of its Scholl footcare markets.

There will be a time, hopefully not too far off, when there are more exciting stocks to buy, but while we continue in the recession, investors still need safe, defensive shares, and SSL more than fits the bill. Buy.


Our view: Hold

Share price: 158p (+1.25p)

If ever an industry needed a bit of good news, it is pubs. The sector has been dragged through the mire for most of the past two years due to the poisonous cocktail of the smoking ban, woeful weather and the recession.

Yesterday, however, things got a little better when the brewer and pub group Marston's issued what can only be described as a reassuring trading update, saying that sales over the past two months are marginally up. The news had little effect on Marston's shares, but provided a tonic for the sector, as other stock prices rose.

Before you rush out and buy the stock, however, assuming that the green shoots are about to explode into blossom, consider that even Marston's chief executive, Ralph Findlay, cautions against getting carried away. The economy is too fragile, and two months worth of good numbers is insufficient to declare that the worst is over, he says.

The analysts were generally more upbeat, with those at Citigroup pointing out that trading on a price-earnings ratio of eight times, Marston's shares are at a discount to their long-term average rating of about 11 times. Add to that that the group's debt, although a dizzying £1.3bn, is secured for at least the next four years, and the investment case emerges.

We would not be buyers, however. We tend to agree with Mr Findlay that the sector is not yet out of the woods, and think that the solid results expected from a number of groups, including Marston's, will look artificially good against the dreadful figures of last year.

Marston's is a good company that will improve, but we would remain cautious about all pub stocks for the foreseeable future. Hold.


Our view: Buy

Share price: $3.50 (+10c)

Ukrainian chicken farms might not strike buyers as the most obvious place to invest during a recession, but MHP, the London-listed operator, reckons it is on to great things.

The company said yesterday that full-year revenues were up 69 per cent to $803m (£538m), with all of its chicken farming operations running at full capacity. Analysts at UBS say buy, adding that the stock is cheap, trading on just 2.8 times enterprise value to Ebitda.

While we would be wary that the group reports in dollars, but has its assets in the Ukrainian hryvnia, which has depreciated markedly in the last year, we are impressed by the progress that MHP has made since listing in May last year, and are conscious that it will continue to benefit from growing chicken prices.

While a bet on MHP is certainly a step into the unknown, we think that the stock is worth adding to punters' portfolios. It might be a bumpy road ahead, but we reckon buying MHP will reap rewards for investors.