Investment Column: Informa's recovery story remains intact
Pendragon; Morgan Sindall
Wednesday 23 February 2011
Our view: Buy
Share price: 436.2p (-12.8p)
The power went out in Informa's offices as the management was putting the finishing touches to the final results on Monday night, forcing the team to call on the disaster-recovery plan to complete the job.
Fortunately for the company, there were no disasters in the actual results to report to the market yesterday, and as chief executive Peter Rigby said: "It is not a disaster recovery, but it is a recovery story."
Revenues met consensus as they remained flat at £1.2bn, while profits rose by just over 1 per cent to £313.2m. Investors will recall that Informa's markets were hit hard by the downturn, but the company is in confident mood, something that was evident as it upped the dividend by more than a fifth.
In terms of publishing, Informa is at the stable end of the market as the revenues are more reliant on subscriptions, which have remained resilient, rather than on advertising. Sales in its Academic Information business rose 4.7 per cent, and the trend has continued with renewals for 2011, though it could suffer as education budgets tighten later in the year.
The pleasing factor was the recovery in the events business, one which management readily admits is much more volatile. The division is performing well and is set to expand in Brazil, Saudi Arabia and the Far East in the coming months.
Moreover, it should be noted that the company has prepared well for life after the downturn. It has a strong balance sheet and net debt was down a tenth to £779m at the end of the year. Momentum is good, as is cash generation, and Informa is well positioned in growth areas such as digital and emerging markets.
Collins Stewart has estimated that the price is 12.3 times estimated full-year earnings for 2011, which looks pretty undemanding given the strength of its portfolio. Buy.
Our view: Buy
Share price: 23.5p (flat)
Pendragon, the UK's largest car-dealership chain, wheeled out a sparkling set of results yesterday.
Boosted by a roaring trade in luxury cars, Pendragon more than doubled its pre-tax profits to £25.2m for the year to 31 December. A further tonic came from the group saying that it had carried forward its momentum from last year into this year.
The company, which has 236 franchise dealerships in the UK and nine in California, also outperformed the market in used cars with like-for-like sales volumes rising by 12.1 per cent over the year. However, the star performer in 2010 was its Stratstone business, which sells luxury Aston Martin, Ferrari and Porsche vehicles through 98 franchise points.
Stratstone grew operating profits by 57 per cent to £29.2m due to strong operational leverage as its costs remained flat year-on-year. While Pendragon still has net debt of £325.5m, and although it passed on a dividend, its prospects now look far rosier than when its future was in doubt during the credit crisis.
Moreover, despite its share recovering from a 12-month low of 16.5p, it trades on a forward earnings multiple of 6.6, which makes us think they will roar ahead. BUY.
Our view: Hold
Share price: 692.5p (-23.5p)
We have been holders of Morgan Sindall, reasoning that while the construction market looks far from cheery, hampering sector sentiment, the company looks strong and well placed to make gains when the tide eventually turns.
The company suggested as much when it posted full-year results that were above hopes last night, with executive chairman John Morgan saying that while the overall construction market was "looking 10 per cent smaller", the company expected its own "market share to increase over the next few years".
The problem is that, with a significant exposure to the public sector, we fear that the shares may struggle as the cuts begin to bite.
The fact that they are up some 20 per cent since the beginning of September does not help matters, in our view, as negative newsflow out of the Treasury might well trigger profit-taking. That said, the stock trades on multiples of less than 10 times forward earnings, supported by a 5.9 per cent dividend yield, according to Liberum. This is not a sell, but nor is it a buy just yet. Keep holding.
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