Investment Column: Ladbrokes remains a solid long-term bet

Cable & Wireless Worldwide; Umeco

Our view: Hold

Share price: 139.5p (-2.5p)

That the Ladbrokes share price fell back after the bookies posted full-year figures may be explained as nothing more than a case of buying on the rumour and selling on the news.

The stock had rallied into the results. Thus it would have made sense for some who had bought in on the hope of positive numbers to bank gains on news of healthy rise in annual operating profits (though the news on current trading was unimpressive).

That is one view. Another doing the rounds was that the market was unmoved by plans to pump £50m into developing new software over the next two years. The chief executive, Richard Glynn, declined to comment on the progress of takeover talks with 888, but said Ladbrokes was focused on engendering organic growth.

We suspect that the weakness is caused by a combination of the two views. We do, however, think that the former factor was the bigger driver. Organic growth is a good thing and we cannot see why the shares should be penalised for management's focus on the long term.

The last time we looked at Ladbrokes we held back from buying as it appeared fairly priced. At current levels it trades on forward earnings multiples of around 10.7 times, supported by a yield of nearly 5 per cent, according to Panmure Gordon. So it continues to command a decent valuation although it is far from pricey. Given the news on trading and the recent rally we might have been tempted to sell. But management's drive gives us confidence. Hold.

Cable & Wireless Worldwide

Our view: Hold

Share price: 75.5p (+1.95p)

Cable & Wireless Worldwide (CWW) has had a bit of a rollercoaster ride since it split from Cable & Wireless Communications last year. The telecoms provider's shares took a beating in the summer over Government spending fears but has recovered partially as the dust appeared to have settled and it signed new clients.

CWW released an interim statement yesterday although keen followers of the stock would not have learnt much. The brief release said the business "continues to trade in the current year in line with expectations". More will emerge at the full-year stage.

The nerves around the sector had seen the shares drop 20 per cent on one day in the summer after it warned of a "significant slowdown" in Government spending. About 12 per cent of its business comes from the state and by November it was able to tell investors that the cuts would not hit it as hard as feared.

Yesterday's statement did say the company had made progress during the second half with further Government and business wins, as well as the renewal from some of its most important contracts in the global business.

The company has concentrated on building a strong data network to offset the decline in revenues from voice traffic and the analysts at Killik believe it is well placed to capitalise on industry trends. Moreover, the update was positive and analysts believe investors will be reassured after the profit warning last year. RBS has the stock on a value of almost 10 times forward earnings. That looks about right to us. Hold


Our view: Hold

Share price: 506.6p (-6p)

Trading is good at Umeco, the supply chain services and advanced composite materials group. An update yesterday showed revenues up by 15 per cent to £153m in the four months to the end of January, and the order book at the end of last month standing a £261m, nearly £20m higher than it was at the end of September.

It was not all good news. There will be a hit from the delays to the Boeing 787 programme. And the process materials business may feel a growing squeeze from rising commodities prices.

But the biggest factor in the company's future is the potential sale of its Pattonair supply chain business, which outsources components for aerospace customers, particularly Rolls-Royce.

There was little on the issue yesterday: non-exclusive discussions continue, "which may or may not lead a sale".

But while margins are being squeezed which is dragging down the rating of the company as a whole, there is strong likelihood the deal will be struck. Umeco's stock has already been on the rise for the past year; freed from the weight of Pattonair, it will go higher. Buy.

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