Investment Column: Market worries temper the BHP case

Sports Direct International; Fidessa


Our view: Hold

Share price: 2,534p (+63p)

So far, we have been pretty bullish on the big diversified mining groups. BHP Billiton in particular has stood out, boasting not just an enviable exposure to key commodities such as iron ore and coal, but also one of the strongest balance sheets in the sector.

To be sure, the miner remains very strong. Yesterday's production update showed that its iron ore business, though hit by the flooding in Western Australia earlier this year, remains on track to book a record annual performance. On the downside, the outlook for the coal business was tempered by persistent rains down under.

But before the bears start celebrating, we would highlight that the rains will eventually clear and the business will recover in due course. Given the attractive fundamentals of the international coal market, it is a question of when, not if. And when things do get better, BHP, which is investing billions in its operations, will be in a good position to reap big gains.

That said, we are concerned about the commodities market as a whole. The recent surge suggests that the market will have peaked, with Goldman Sachs – one of Wall Street's best-known commodity bulls – recently telling its clients to exercise caution. We agree. The low interest-rate environment that has aided the price of key metals is being increasingly questioned as policymakers attempt to rein in rising consumer prices around the world.

All this makes us cautious. But again, BHP's balance sheet, and its still-affordable valuation of under 11 times forward earnings, argues against a "sell" stance. The investment programme only adds to the attraction, as it prepares the company for the longer term. However, our concerns about the commodities market in general tempers our enthusiasm and for now makes us wary of pressing the "buy" button again.

Sports Direct International

Our view: Buy

Share price: 198.9p (+2.9p)

Mike Ashley's Sports Direct has never been far from controversy – but this time, there is nothing to worry about.

It was able to calm nerves after the Fair Trade Commission raided Adidas in Japan, alleging the footwear firm has enlisted retailers in dodgy practices to hurt sales of rival Reebok EasyTone shoes in the country.

Sports Direct was able to say that Adidas had not supplied it with these Reebok trainers and if such an issue arose in the UK then Sports Direct would "not face any risk of sanction" – a statement that helped to propel Sports Direct's shares to their highest since June 2007.

From an investment perspective, we remain fans of the company, and we're hopeful of another good trading update today. For a start, Sports Direct is the dominant player in the market for affordable sportswear, not least because rival JJB Sports has been struggling for a number of years.

The retailer has improved profits and sales sharply for the past three years, and has plenty of growth ahead of it in Europe – not to mention the boost from the London Olympics and European Championship football.

Moreover, despite its recent surge, the stock trades on an undemanding forward earnings multiple of 11.5. With the prospect of its dividend returning in its 2011-12 financial year, we're happy to keep backing this horse.

Fidessa

Our view: Buy

Share price: 1,770p (+32p)

Fidessa's trading update yesterday was steady as she goes. In a statement short of numbers, the trading platform supplier and consultancy said it was winning "significant new orders" despite the regulatory and economic uncertainty hanging over its financial-institution customers.

The company is a technology favourite because of its strong cash flow, recurring revenues, prudent management and leading position in a market expanding in fast-growing economies. The threat of regulation has dampened demand for Fidessa's services as banks have held off on big projects. But its low-key chief executive, Chris Aspinwall, says that once the picture clears, regulation will be a "tail wind" as large customers upgrade their systems.

Cautious investors will point out that the stock trades at a premium: 24 times Numis's 2011 forecast earnings versus 16 times for the wider software sector. But we think the market is right to award Fidessa's cash generation (with regular special dividends), growth prospects, lack of debt, and restraint on acquisitions.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
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

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system