Investment Column: Morgan deserves a premium

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The Independent Online

Our view: Buy

Share price: 335.6p (+3.1p)

The last time we looked at Morgan Crucible, we decided to hold, reasoning that while the company boasted strong prospects, the shares, though not forbiddingly pricey, had already woken up to the growth story.

Since then, the industrial materials group, which serves a variety of markets, including energy, has continued to show strength. Yesterday's half-yearly results, for example, showed an 11.8 per cent rise in revenues against the same period last year. In constant currency terms, the hike was 14 per cent.

At the same time, the underlying operating profit margin increased to nearly 13 per cent from under 10 per cent in the first half of 2010. Underlying pre-tax profits saw particularly stellar growth, surging by more than 66 per cent. This spurred management to up the interim dividend by more than 20 per cent.

This ship is clearly on the right course. Beyond the headline figures, we were particularly encouraged by the strength in Morgan Crucible's emerging markets businesses, which saw a year-on-year rise in revenues of 35 per cent in constant currency terms. The outlook was also positive, with the chief executive, Mark Robertshaw, saying that although the economic backdrop remained uncertain, the company was well placed to make progress towards its goals.

So, is it time to buy again? In a word, yes. Besides the strong performance, and despite share price gains in recent months, the valuation has come down. In fact, the stock trades on just over 12 times forward earnings for this year, and on under 11 times on the estimates for next year, according to Numis. That leaves the share price at sizeable discount to the wider sector, something for which we cannot find any justification. The market, it seems to us, is overlooking a long-term winner with strong prospects at a time when numerous companies are struggling to steer their way through uncertain economic waters. This one deserves a premium.

Brewin Dolphin

Our view: Buy

Share price: 152p (-6.7p)

Shares in Brewin Dolphin took a dive yesterday after the financial services firm released its third-quarter update.

The numbers did not make for fantastic reading. Most notably, its investment management revenue of £64m was a sizeable 11 per cent behind forecasts, while funds under management missed hopes by 3 per cent.

Yet it is worth noting that the period covered in the update runs to 26 June, just before the markets enjoyed a major rise in the last few days of the month. Such was the size of the move that, according to estimates from the analysts at Peel Hunt, it would have boosted Brewin's assets under management by around 4 per cent.

Investors should also note that although Brewin's share price has been under pressure since March, City scribblers have been positive towards the group. The reason is that back in May, the company announced plans to tackle the thorny issue of why its operating margin was significantly lower than those of rivals such as Rathbones.

The major review that was launched at the time is expected to take up to three years, although the company did say it hoped to see some positive changes in the near future. Nonetheless, it remains a long-term issue and, if you're prepared to wait, it could provide some significant upside as the company makes improvements.

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