Investment Column: On a wing and a prayer, buy Aer Lingus

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Aer Lingus

Our view: Buy

Share price: €0.67 (unchanged)

Aer Lingus is a tricky call. Yesterday's announcement about passenger numbers is a case in point. Overall traffic climbed by a modest 0.6 per cent, compared with January 2009. But the devil is in the detail.

Although short-haul traffic grew by a respectable 3.6 per cent, to 608,000 passengers, long-haul plummeted by a whopping 23 per cent to just 57,000 compared with the same month last year. Capacity was down by 10.7 per cent, pushing the airline's load factor up to 67.4 per cent in January, a 3.1 percentage point rise year on year.

Even in the context of the battered airline industry, Aer Lingus has had an unusually torrid year – not helped by continual carping from rival Ryanair's famously outspoken chief executive, Michael O'Leary. He described the company as "worthless" at one point, and also predicted it would be bankrupt within 18 months.

But although the €94m (£82m) loss in the first half of last year wiped out the "small profit" the company scraped together in the second – and the latest estimates from the group are that it will not return to profitability until the first quarter of 2011 – there are still gains to be made.

The new chief executive, Christoph Mueller, who came on the scene last September, has put in place a stiff cost-cutting plan designed to slash €97m from annual running costs by 2012 by paring back the group's head office, updating its technology systems, and cutting 675 staff. Unsurprisingly, the plan caused ructions but the dust appears to be settling, and last month the airline's pilots backed away from a strike threat and agreed to a 10 per cent pay cut and 76 redundancies.

The share price has already gone up by a fifth since mid-December and we think there is further to go. Tricky? Yes. But worth a punt. Buy.

YouGov

Our view: Buy

Share price: 40.6p (-0.15p)

We are not quite sure when yet, but certainly within the next three months or so we will all be heading for the polls to elect a government. Before we get to the polling booths, we will all have to endure weeks of being told by the polling organisations which party we are likely to vote for.

The election is a "great shop window" for groups like online market research outfit YouGov, which also conducts market research for a whole raft of organisations.

The company issued a pre-close trading statement yesterday saying that while full expectations would be hit, profitability "will be stronger in the second half of the financial year than in the first". The company's financial position is robust, with £15m in cash and no debt, according to the chief executive, Nadhim Zahawi.

The problem for shareholders is that as the group has seen better times in the past six moths, YouGov's share price has rocked. The stock's 16 per cent increase over the past year is overshadowed by the fact that it has dropped by 25 per cent since August. This is down to a number of big institutions selling the shares and creating an overhang, which has now been cleared, says Mr Zahawi.

According to the watchers at house broker Numis, the stock is pretty cheap if you look at it from an enterprise-value-to-Ebitda point of view. On a price to earnings ratio of 14 times, YouGov looks a little more in line with its peers, however.

Frankly, we do not see the shares outperforming, although we would agree that YouGov will get lots of publicity from the forthcoming election, which can often be as useful for small-caps as good corporate news. As such, we're buyers.



Kofax

Our view: Hold

Share price: 192p (-9.75p)

Kofax says it is a "leading provider of document driven business process automation solutions".

Apparently this baffling sentence (devoid not only of hyphens, but meaning altogether) translates as it providing digital scanning software, and offering automated invoice processing.

The group yesterday said that revenues jumped 9 per cent for the first half-year, although pre-tax profits were down two thirds to $3.6m.

Having run into some difficulties after launching a plan to restructure two years ago, analysts yesterday expressed their relief that it was finally paying off. The management was bullish that it is well placed to grow, beyond the effects of the downturn. The outlook for its software business looks to be improving – it grew 17 per cent in the first half against just 1 per cent in the hardware business – and the company increased the guidance accordingly.

Piper Jaffray has the stock on a price of 14.4 times estimated full-year earnings for 2010, but it is a bit early for us to pile in yet. Hold.

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