Investment Column: Legal & General is too cheap to ignore

Moneysupermarket.com; Marston’s


Our view: Buy

Share price: 62.15p (-3.1p)

Life insurance is a complicated business, says Legal & General's chief executive Tim Breedon, adding that that explains the relative cheapness of his company's stock. The shares got even less expensive yesterday, when they fell 4.75 per cent after the group's first-half results.

Complicated accounting procedures and the lack of understanding among some analysts contributed to the fall in the share price , Mr Breedon argues, saying that punters who buy the shares today would be getting a modern, well-capitalised and efficient life insurance group that has the cash generation to provide for good dividend payments in the future.

No doubt, and we applaud Legal & General for its attention to cash generation and the balance sheet repair work it had done. However, investors will be unhappy that the dividend was slashed by 45 per cent yesterday, even if Mr Breedon argues that the payment bettered the expectations of most analysts. Profits were down, and even though this was again expected, it is not something that should fill buyers with confidence.

And yet we do rather like Legal & General. Analysts at Panmure Gordon do too, and point out that the group trades at a 31 per cent discount to enterprise value: "On an IFRS price-to-net-asset-value basis, the shares are trading at a multiple of only 1.16 times. The dividend yield based on our 2009 forecast of 3.2p a share is a healthy 4.9 per cent. We think that if the share price does not recover in the short term (based on flat investment markets), then L&G will increasingly become the subject of corporate activity".

The industry still faces challenges, not least that of helping to educate investors, and the next few months are likely to remain tough, but the stock is cheap enough to make a speculative bet worthwhile. Buy.

Moneysupermarket.com

Our view: Buy

Share price: 72p (-0.3p)

When better to shop around for the best possible deals than when money is tight during a recession? Unfortunately for the price comparison business Moneysupermarket.com, that logic has not played itself out. It reported a first-half profit of £1.9m yesterday, down from £14.4m last year, on sales that were down 30 per cent.

The problem for Moneysupermarket.com is that its key businesses have been credit crunched. With mortgage finance having dried up and personal loans harder to come by, fewer people have been hunting down bargains. That's had a knock-on effect on insurance-related searches too. Other revenue streams have also suffered.

In the bad old days of dot.com mania, that combination would have spelled disaster. Yet Moneysupermarket.com is still here, still in the black in fact, and was yesterday able to offer a special dividend of 4.93p a share.

This is a well-run company with no borrowings. Its cash pile of £76m reflects a prudent approach coming into the recession, and the willingness of founder Simon Nixon to step aside from day-to-day control was a mature move that has paid off – new boss Peter Plumb has brought a fresh approach.

Indeed, Moneysupermarket.com is now cautiously optimistic about the second half of the year, with trading having begun to pick up during the third quarter. A marketing campaign starring Dragon's Den entrepreneur Peter Jones is performing well.

There are no obvious comparisons, but Moneysupermarket.com does look highly valued at around 18 times 2009 earnings according to estimates by Investec. Still, threats of competition from internet giants have not yet become a reality. This is a growth stock to put away for the long term. Buy.

Marston's

Our view: Buy

Share price: 95.8p (+0.6p)

When we last looked at pub group Marston's a few months ago, the company said that, at last, it was emerging from the nuclear winter that has engulfed the industry over the past couple of years.

We were cautious and wanted more evidence that the numbers were not just a blip, especially after its chief executive Ralph Findlay, warned the market not to get carried away too.

We think that now is the time to buy. The group put out another set of steady-as-she-goes numbers yesterday, saying that like-for-like sales in the six months to the start of August were up 2.3 per cent, with a 6 per cent rise in food sales. Mr Findlay is more optimistic, saying that since February trading has been stronger, despite rising unemployment and, almost unbelievably, a wetter July than last year.

Buyers should still exercise caution, but with the stock falling by 25 per cent in the last quarter, and offering a dividend yield of 6 per cent, we think punters are getting a bargain. Buy.

PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Account Manager - (Product & Account Management, Marketing)

£26000 - £30000 per annum + Benefits: Ashdown Group: Account Manager - (Produc...

Training/Learning and Development Coordinator -London

£28000 - £32000 per annum: Ashdown Group: Training/Learning and Development Co...

Training Programme Manager (Learning and Development)-London

£28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...

.NET Software Developer (.NET, C#, ASP.NET, front-end)

£30000 - £45000 per annum: Harrington Starr: A Global Financial Service Organi...

Day In a Page

A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on
It's the best of British art... but not all is on display

It's the best of British art... but not all is on display

Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
Critic claims 'I was the inspiration for Blanche DuBois'

Critic claims 'I was the inspiration for Blanche DuBois'

Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
Sometimes it's hard to be a literary novelist

Sometimes it's hard to be a literary novelist

Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

Edinburgh Fringe 2014

The comedy highlights, from Bridget Christie to Jack Dee
Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

The woman stepping down as chair of the Heritage Lottery Fund is worried