Investment Column: Kewill is shipshape to ride out the storm

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Kewill

Our view: Buy

Share price: 71p (+2p)

Investors face something of a quandary when it comes to software group Kewill.

In one respect, the company, which produces programmes for the logistics industry, is doing well and its concentration on generating as much recurring revenue as possible is to be applauded. New contracts with the likes of Danish shipping group Maersk clearly help, as does the company's lack of reliance on one particular customer.

It is not all sweetness and light, however. Chief executive Paul Nichols says that clients see Kewill's software as an opportunity to save money, and maybe he is right, but the group has been hit by the recession and investors should not take lightly the observations of the watchers at KBC who point out that revenues fell over the last year in most operating territories. The company is doing what it can to guard against the worst of it and has cut costs appropriately, but it is clear from the lagging share price that there is some nervousness built into the shares.

"With the stock having net cash on the balance sheet, trading on a March 2009 enterprise value to Ebitda of 6.3 times and a price earnings ratio of 8.2 times, we see some 23 per cent upside from current levels," say those at KBC.

Any punt on Kewill would be risky, but given the discount, and the fact that the company increased its dividend as part of yesterday's full year results, we could be tempted. Mr Nichols says there are some tasty new contracts to disclose during this financial year and that that should push up the share price.

We reckon equity markets are set to tread water over the coming six months or so, and with that in mind it might be worth investors putting some of their "let's see how this goes" fund into Kewill. KBC says the worst is over for the group, and there is always the dividend to consider. We think Kewill's share price is largely news driven, and with the group promising good updates, we would buy. Buy.

Circle Oil

Our view: Buy

Share price: 32.75p (-0.75p)

Just over a year ago, a barrel of oil, should you wish to have bought one, would have cost you $147.

At around that point it probably was not the dumbest punt to put money into the oil companies. The producers were clearly raking it in, and even investors in the smaller exploration groups could expect a fantastic payday if their bet found some black stuff.

Naturally, that changed when oil prices fell, but prices have crept back up over the last few months. David Hough, the chief executive of Circle Oil, a group that operates in North Africa, reckons that prices will stabilise at around the $70 a barrel mark, which makes Circle's timing exquisite. The group announced some encouraging discoveries in Egypt and Morocco in the last year, and while losses were shown to increase in yesterday's preliminary results, much of that was connected to the cost of getting wells into production.

We can think of few reasons not to invest in Circle Oil. The shares have enjoyed a big spike in recent months, climbing nearly 80 per cent since March, but we would argue that there is more to come from the stock with increases in production expected to come online in Egypt and Morocco later this year. There is always an execution risk, and the oil price may fall of course, but those risks are inherent with every company in the sector.

Mr Hough says the group got lucky in finding oil in Egypt last year. We think investors will get lucky buying Circle shares. Buy.

Netplay TV

Our view: Hold

Share price: 25.25p (unchanged)

Ladies and gentlemen, place your bets.

Netplay TV, which yesterday issued its preliminary results, reckons it is on to something big.

The group, which offers gaming services through a host of platforms, including live dealer offerings in betting shops and interactive betting on TV via Virgin Media, thinks it has a "unique" portfolio, with its chief executive and biggest shareholder, Martin Higginson, saying, "Netplay TV has come of age."

Whether that is true or not, no doubt the group has made great strides in recent years, and as the company gives more detail on agreements with new platforms, so the share price will benefit.

However, the stock, which trades on a price earnings ratio of 14 times, already comes at a hefty premium to the sector.

Even the analysts at house broker Panmure Gordon, who are gushing in their praise for the group – "we continue to see excellent growth opportunities for the business as it roll out its converged gaming solutions" – and recommend that their clients buy the stock, say that the shares will only reach 30p. The group is not yet profitable and pays no dividend.

Netplay is a good buy, but only at the right price. We would wait for a little softening. Hold.

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