Investment Column: Investors should raise a glass to AG Barr

888 Holdings; Oxford Catalysts Group
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The Independent Online

Our view: Buy

Share price: 1,211p (-19p)

AG Barr is a good or a bad punt depending on how you think the next year will go. If you are a glass half full, green shoots optimist, it might now be a little too late to buy, despite the company performing very well.

Analysts at Altium point out that the Irn-Bru maker's shares have relatively outperformed the market by 55 per cent in the past 12 months. Yesterday's impressive preliminary results, which showed a 9.7 per cent rise in pre-tax profits, were met with a marked lack of enthusiasm among investors, indicating that the shares are pretty much already fairly valued.

We see very little evidence of any shoots, however, green or otherwise, and would therefore be inclined to buy what has so far been a safe and solid stock. The group has shown itself able to outperform others during the recession, and even though the shares are not cheap, with an increase of 6 per cent in the last 12 months, AG Barr has been a stock worth holding. A 7.7 per cent dividend increase, of 3p to 42p, should also be a persuading factor.

Its chief executive, Roger White, says that he cannot do much about the share price, except for delivering impressive results. Has the stock done well in the last year? Not really, he says, pointing out that it is not up that much given the good numbers.

AG Barr is reliant on consumer spending, but at the low-cost end, which hitherto appears to be holding up better than other areas of the market, making the company immune from the worst of the financial crisis.

At some point, in what we hope will be the not too distant future, investors will be able to buy shares that offer bigger gains than they are likely to get with AG Barr. For the time being, however, we would be content to take what is a safe, if rather pricey, punt on a resilient company. Buy.

888 Holdings

Our view: Hold for now

Share price: 107.75p (-4.75p)

The problem for online gaming and gambling groups is that while they say they are resilient, and so far the numbers have backed up the argument, they have never before been through a recession. And maybe yesterday's full-year results from 888 indicate that the companies that have done very well in the past few years are starting to feel the pinch as consumers cut spending.

The numbers were good, with pre-tax profits up $2.2m (£1.6m) and, more importantly, the dividend being raised to 5.4c. The company said, however, that revenues in its poker arm fell in the fourth quarter of last year, and that the "economic climate remains challenging". This is a subtle change of tack from August's interims, when the chief executive, Gigi Levi, said the model was solid as people tend to stay in during a recession, and spend more time online.

Investors should not give up on 888, however. The company has mitigated the slowdown in its consumer markets by switching its attention to business-to-business work, providing others with the platform to launch their own online offerings. After signing in 14 partnerships last year, the company yesterday unveiled a deal with Racing Post, which will see it earn a percentage of Racing Post's online gaming revenues.

Furthermore, trading on a 2009 price-earnings ratio of 10.3 times, compared with its rival PartyGaming, which trades on 13.7 times, the stock is cheap, despite a surge of 13 per cent in the last three months. We are nervous about the sector at large, but rather like 888's change in approach to a changing market. Hold for now.

Oxford Catalysts Group

Our view: Hold for now

Share price: 47.5p (-8p)

"The outlook for the group is very positive," said yesterday's full-year results statement from Oxford Catalysts, the Aim-listed clean synthetic fuel company. Sadly, the market was less enamoured, and the stock closed the day down 14.4 per cent, adding to a fall of 45 per cent in the last quarter.

The group, which develops several technologies, including making steam without boiling water, said that 2008 losses were £3.4m, from a £1.8m loss last year.

With the shares falling to an all-time low yesterday, investors that buy now are getting an inexpensive stock, but certainly not anything that will offer short-term riches. The company is upbeat, saying that its recent acquisition of the US group Velocys is a turning point, and that with £16.3m in cash and a plan to start commercial demonstrations this year, Oxford Catalysts might not be a short-term punt, but it is a sure-fire bet for the future.

Anything of this size is a dangerous buy, regardless of how lucrative a potential end market. We do like Oxford Catalysts, however, and think they have probably done the hard work in respect of the company getting itself in place to have a shot at the big time. Hold for now.

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