Investment Column: Numis set to suffer as IPO market dries up

By Alistair Dawber
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The Independent Online

Our view: Sell

Share price: 110p (-1p)

An update for those that have been on Mars for the past 18 months: the financial services industry is having it tough. Further evidence, if any were needed, was seen in the investment and brokerage group Numis Corporation’s preliminary results yesterday, which showed that pre-tax profits, of £16.1m, were down by more than 50 per cent on last year’s £38.8m.

On the face of it, things do not look that rosy for the next 12 months either. By the chief executive Oliver Hemsley’s own admission, the capital markets are rubbish and IPOs have all but dried up.

Analysts at Arden Partners point out that, because about 60 per cent of the shares are held by the staff, the price is steadier and therefore Numis deserves to trade at a premium to its peers. The firm’s stock has fallen 53 per cent in the past 12 months, compared to Collins Stewart’s drop of 77 per cent. The problem, say those at Arden, is that the extent of the premium is not justified: Numis is rated by the watchers at 9.3 times 2009 earnings, compared to Collins Stewart’s 5.7 times. Couple to this the fact that Numis has no private client arm, which typically generates solid recurring revenues and the case for Numis starts to unravel.

Mr Hemsley points out that the group, which already trades at net asset value, has plenty of cash and that he expects to pick up good people as other houses shed staff. However, Mr Hemsley himself does not try to argue that all is great in the markets and we would tend to avoid financial services stocks completely for the time being. Sell.

ACM Shipping Group

Our view: Buy

Share price: 150p (+12.5p)

When we last looked at the shipping brokerage ACM Shipping in June we liked them: the numbers were good, there was no debt and the forward order book looked impressive. The only problem was that the stock was pricey and traded at a hefty premium to the rest of the sector.

Problem solved. Since then the shares have fallen from 267.5p to today’s level. The better news is that buyers are now getting better value for money. Analysts at ACM’s house broker Noble, who in June said that the stock price looked a bit toppy, said yesterday that “the current multiple of 5.6 times 2009 earnings places ACM broadly in line with the sub sector [at] 4.3 times to five times and presents an attractive entry point for investors”.

Buyers would certainly be getting a good stock. The group’s interims showed pre-tax profits at £3.1m, up from £1.7m last year and an order book, of $43.5m, at record levels. The other good news is that as a beneficiary of a high dollar versus the pound, ACM is set for a currency boost, one that will only feed into the full year numbers, says its chief executive Johnny Plumbe.

The group is a wet cargo broker, relying predominantly on the movements of oil. Those worrying about the fall in the price of the black stuff, don’t. ACM depends instead on the consumption of oil and with global usage set to exceed the current 86.2 million barrels a day next year, it looks good.

Or does it? The fly in the ointment is that there is a reason for the slippage of the shares in the past six months. The dry bulk cargo market has imploded and Mr Plumbe reckons the uneducated investor has not yet got hold of the fact that the wet cargo market is still afloat.

Investors buying today would be taking a market risk, but that should not hide the fact that ACM is strong, and now more reasonably priced. Buy.


Our view: Cautious hold

Share price: 301.5p (+4.5p)

The downturn in the property markets can come as something of an annoyance for those that own freeholds in areas that have been hugely profitable since the 17th century.

Shaftesbury, the reit that holds prime real estate in the West End of London, says the downturn is less of a concern than ensuring that shoppers can get to Covent Garden and Carnaby Street safely. The group is not selling any property, it says, so no real need to worry about falling property prices.

Short-term market fluctuations might not worry the group, but the City will not be impressed by a pre-tax loss of £221m, announced yesterday. The City will be further unimpressed by the 30 per cent drop in the share price in the past three months.

Reits have been hit hard in recent months, and things will not improve fast. Shaftesbury is one of the better investment options, but hold on to your hat. Cautious hold.