Investment Column: Investors should remain cautious over ITE

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The Independent Online


Our view: Hold

Share price: 144.9p (-8.1p)

The recession proved a show-stopping event for many businesses, something ITE Group felt literally: the group organises trade exhibitions and conferences in growing and developing markets, including Russia, Ukraine, Azerbaijan and Turkey and so suffered badly in the downturn.

ITE released first-half results yesterday and evidence of its late cycle qualities was clear. Chief executive Russell Taylor described the six months as "challenging" as the group traded through the low point in the economic cycle, Client firms tend to book for events well in advance, and it showed in the almost 10 per cent decline in revenue to £39.2m in the six months to the end of March. Pre-tax profits almost halved to £5.6m; although the tumble was not so noticeable when foreign exchange movements were stripped out. What's more, the trend has continued: ITE has £98.1m of revenue booked in for the full year, down from £103.3m a year ago.

Yet ITE is still investing in new events, and sentiment has improved among exhibitors – most significantly in Moscow, its biggest market. The company is confident it is in a good position to grow, saying events remain the primary route to market for many customers and there is potential in new projects, such as the recent buy-up of 70 per cent of an exhibition organiser in Delhi. The company is dependent on economic recovery, but lags the market, so the upside is not likely to come through for a while. But the shares have risen 17 per cent this year, and according to Numis trade on 10 times full-year earnings before interest, taxation, depreciation and amortisation. It could be a growth story in 2011, but we'd like to see a bit more evidence before diving in, so just hold for now.


Our view: Buy

Share price: 1079p (-2p)

The last time we looked at Kier, the construction, housebuilding and contracting group which issued an update yesterday, we were troubled by the valuation. The sector looked set for a recovery, but the stock, though offering a 4.7 per cent yield at the time, was at a premium which stopped us from buying. This time round, however, the valuation seems to have relaxed. That's right, for while the sector is showing signs of recovery, the shares are trading on a multiple of just 9.9 times Panmure Gordon's forecasts for the full year, compared to nearly 13 times when we last had a look. That falls to 9 times on the broker's numbers for 2011. And for income investors, the yield is now at 5.5 per cent. We understand that the economic picture remains uncertain, with everyone waiting to see what impact the coalition's cuts might have on growth. But the reversal in Kier's valuation – and the strength of the yield in particular – offsets that. Yesterday's statement is also supportive, with Keir reporting a healthy order book and a strong net cash position. The news on the construction order book was particularly pleasing, with the company saying that it had secured more than 80 per cent targeted construction orders for 2011, putting it slightly ahead of the position last year. That's good enough for us. Buy.

SVG Capital

Our view: Buy

Share price: 156.5p (-7.8p)

SVG is currently an investment trust which invests most of its money in funds run by Permira, one of the blue chips among the private equity world. We say currently because it is preparing to move its listing to the "other financials" sector (on 21 June), which should fuel demand from funds that avoid investment trusts.

But that's not the only reason to take a careful look at the shares. SVG – whose portfolio includes New Look and Hugo Boss – yesterday issued an interim management statement which gives some grounds for optimism. The value of the quoted portfolio grew by 13 per cent, although that will probably be offset by a weak euro and operating expenses. And there's been little enough activity in the portfolio. SVG has paid out a total of £15m in calls to existing investments and received £20m of distributions (largely through dividends). It will also be paying a call of approximately £29m to the Permira IV Fund this month for follow-on investment in Hugo Boss & Valentino, but has cash available to fund this.

However, what really is to like about the statement is that SVG sees real signs of economic recovery, which should filter through to portfolio companies. Oriel Securities estimates the net asset value per share to be at 220p to 230p, which leaves the shares trading at a very substantial discount, one that is too high in our view. Buy.