Investment Column: Investors should avoid battered YouGov

Intelligent Environment; Carr's Milling Industries
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The Independent Online

Our view: Avoid

Share price: 37.5p (+1.5p)

Even though there seems to be little to indicate the economy is improving, equity prices have quietly been on the up of late, and for those who argue that a stock market recovery is the prelude to the rest of the economy returning to life, the signs are getting brighter.

Whether or not you believe that we are on the road to better times, you should not buy shares in the online market research and polling group YouGov.

The company's stock is down 60 per cent in the last three months, and yesterday's interim statement, which included a 54 per cent drop in pre-exceptional profit, warned that "the outlook remains uncertain in the current market environment".

There are bits of good news. The shares were up 4.2 per cent after the company said that it was on target to hit its revised full-year numbers after a profits warning in February. YouGov said yesterday that it has responded to its "disappointing performance" by cutting back on non-core activities and reducing operating costs.

All this is important and will put YouGov on a surer footing for the future. Analysts at the house broker Numis argue that the stock is an "add". "Whilst the company has not been immune from the impact of the economic downturn, we believe that the management are taking the correct steps to right-size the cost base and increase profitability," Numis says.

This, we think, underplays the effect of the recession on YouGov, which thus far has struggled in the downturn.

Its chief executive, Nadhim Zahawi, argues that the balance sheet is in good shape and that there is little debt. The market research industry is set to move online rapidly after the recession, he says, and, being the market leader, YouGov is well placed.

Visibility remains low, however. When the economy has recovered sufficiently, we might be tempted, but not yet. Avoid.

Intelligent Environment

Our view: Hold

Share price: 7.25p (+0.25p)

Intelligent Environment is an odd company for a number of reasons. It is a profitable AIM-listed group that has seen its shares perform well in the past year, and there are not too many of those about at the moment. Consider also that the company's primary customers are the banks, and its 33 per cent hike in full-year operating profits becomes all the more remarkable.

Even though its rather peculiar name does not hint at it, the company makes software that powers the four major banks' online bank accounts, loan applications and credit card payments. Its chief executive, Phillip Blundell, says the future is bright and, despite 50 per cent of the group being linked to the somewhat dodgy consumer finance market, all the banks are increasingly moving many of their operations online, if for no other reason than to save on costs.

Investors should be heartened by all this, and more so with the shares being up by more than 7.5 per cent in the last three months. Mr Blundell also reckons that, despite the recent hikes, the share price, trading on a forward price-earnings ratio of 6 times, is still weak relative to the overall strength of the group and historical comparisons.

The group's brokers at FinnCap are more circumspect. Yes, they say, the shares will reach 9.6p, but they continue to worry about "many banks and retail brands [scaling] down their plans to roll out new credit card and affinity card offerings over the next 12 months as they reassess consumers' appetite for new financial products".

We reckon Intelligent Environment is a good long-term punt, and it looks especially secure for a group of its size. We do think, however, the next year or so may be a little tougher than the last 12 months, and, while risk-lovers might make a killing from buying now, we would wait for signs of better health in the banking industry before buying. Hold.

Carr's Milling Industries

Our view: Buy

Share price: 407.5p (-42.5p)

Fertiliser is supposed to help things grow, but sadly for the fertiliser maker, food and engineering group, Carr's, weakness in the market made the share price shrivel yesterday.

The stock closed the day down 9.4 per cent after the company said as part of its interim results that fertiliser sales, which it could normally expect to contribute 15 per cent to overall profits, will contribute nothing this year. This amounted to a profits warning from the company, knocking confidence.

The warning was annoying for Carr's, which says it sees few other risks, and for investors, who have enjoyed holding a strong stock over the last year. The company's other activities remain solid, with food thriving and its nuclear engineering arm expected to benefit from the Government's £1bn-a-year decommissioning programme.

We think, despite the disappointing fertiliser market, Carr's has been resilient since the onset of the recession. Even though it might be a racy punt, we reckon that, with the sell-off yesterday, now might be the time to buy. We would also expect only strong numbers from here. Buy.

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