Investment Column: J Sainsbury can dismiss all the doubters

J Sainsbury

Our view: Buy

Share price: 334.5p (+2.5p)

Sainsbury's has hired David Tyler, the current chair of Logica, the IT services group, and a retail veteran, as its new chairman. Mr Tyler takes over from Sir Philip Hampton, who has moved to Royal Bank of Scotland, and joins at a time when the business has genuine momentum. Boosted by sharp pricing and a strong own-brand offer, Sainsbury's has delivered impressive underlying sales growth recently and full-year, pre-tax profits rose in the year to March.

In June, the UK's third-biggest grocer surprised the market with a £432m fundraising to accelerate its store expansion programme, particularly in Scotland and the north of England where it is under-represented. Sainsbury's will post its second-quarter figures on 7 October, which are eagerly anticipated coming a day after Tesco.

The City is divided on Sainsbury's shares, with "underperform" and "buy" recommendations floating around in almost equal measure. The sceptics note that Sainsbury's trades on an estimated 2010 price-to-earnings ratio of about 14, which is ahead of Tesco and Morrisons. Furthermore, Sainsbury's improving operating profit margin of 3.26 per cent remains substantially behind that of its listed two rivals. However, admirers point out that Sainsbury's now has a war chest to fund its store expansion programme and plenty of scope for growth in non-food in both stores and online.

Some City analysts also believe Sainsbury's can continue to attract new customers, who find its pricing and product offer much better than several years ago. Potential clouds on the horizon could come from Tesco pushing the pricing button and Justin King – Sainsbury's chief executive who has initiated a turnaround since 2004 – jumping ship to the same role at M&S, although he has scotched such speculation. The shares have fallen marginally over the past year, but in the long-term Sainsbury's looks well-placed to benefit from freer spending among core customers once the recession fades. Buy.



Helphire

Our view: Hold

Share price: 36.75p (+2p)

On the face of it, you would not touch accident claims handling group Helphire with a stick after it put out an unexpected trading statement yesterday. The group decided it was unconscionable not to update the market, given the scale of the impairments that it expects in the second half of the year. Helphire expects to charge further exceptional items of £82m.

Ordinarily we would advise punters to run to the hills on news similar to Helphire's statement. And, as if the update on impairments was not bad enough, the company said that it had also lost one of its five biggest customers when AA and Saga dropped the group to take its claims handling operation in-house.

So a sell, then? Intuitively we would say so, but despite all the evidence pointing to a dodgy investment, the stock climbed 5.8 per cent thanks to Helphire saying restructuring plans would bring some relief. The whole management team is new, and while it is impossible to dress the AA and Saga news yesterday as anything other than a disaster, investors should take heart from yesterday's hike, especially if all the bad news is now out of the way.

While we would not be persuaded to put our life savings on Helphire, neither would we rush to sell. The group will have to deliver improved numbers in the next six months, but we would hold for the time being, banking on October's update to be more positive than yesterday's statement.



Velti

Our view: Buy

Share price: 165.25p (+0.75p)

You know those irritating adverts that flash up on your mobile phone? Velti, the marketing group, believes it has the nous and systems to provide potential advertisers an outlet without annoying the average punter.

The group, listed on Aim, was founded in 2001 and now has 400 employees. It was in the first wave of mobile advertising companies to deliver marketing and technology for companies including mobile operators Vodafone and Orange, ad agencies, and brands including Coca Cola and Honda. It provides the technology and services so that business can market over mobile phones via text, WAP, the web and mobile television.

The group has performed solidly throughout the downturn, and yesterday's first-half results saw a 36 per cent jump in sales to €22m. Net debt stands at €7.6m, in line with expectations. The biggest black cloud on the horizon is related to this year's acquisition of Ad Infuse, which could lose €2m this year.

However, it has a solid client list of big names and should get more, with advertisers keen to find new ways of exploiting mobiles. With a 2010 price-to-earnings ratio of almost six times, this looks like good value. Buy.

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