Investment Column: Outlook is hazy for ash-covered Wh Smith

Renold; Ten Alps

Our view: Hold

Share price: 435p (-19p)

WH Smith looked like a good bet when we bought at 517.5p in October. Delivering improving profits, even if sales were flat, we felt that economic recovery and a corresponding pick-up in travel would give a timely boost to the operation's travel business. With the chief executive, Kate Swann, continuing to work her magic, all looked good.

Events, dear boy, events – so Macmillan's saying goes. Events have not been kind to this retailer and the shares have hit the skids, now sitting well below where they were when we bought in. The expected pick-up in the travel business has not materialised thanks to a certain inconvenient volcanic eruption. That was responsible for a 4 per cent fall in same-store sales at WH Smith Travel.

More worrying was that sales would have been down 2 per cent without the eruption. Air travel remains soft, and while WH Smith says it's outperforming, the backdrop doesn't look attractive. Total group sales in the first 14 weeks of the second half of the financial year were also down on a same-store basis – by some 4 per cent – compared to the same period last year. The high street has not picked up the slack, and with the forthcoming austerity drive likely to constrain Britons' confidence and spending power – particularly in the case of public-sector workers – we are not optimistic.

The news isn't all bad. The company appears confident of hitting full-year numbers, and analysts were hardly rushing to make downgrades yesterday. Smith's has some resilient characteristics, and at about 10 times full-year earnings is not overpriced – it sits at a modest discount to the retail sector and offers a healthy prospective yield of 4.7 per cent. However, given the uncertain outlook and the ongoing possibility that Ms Swann could jump when the right offer comes along, we wouldn't be buying at the current price. It's not time to head for the exit yet but we're downgrading to "hold".


Our view: Buy

Share price: 25.75p (-2p)

Renold is not a sexy business. And at first glance the international industrial chain and torque transmission products group's annual results, published yesterday, were equally unappealing. Revenues came down by nearly 20 per cent to £156m over the 12 months to the end of the March, dragging the group to a full-year operating loss of £4.8m, compared with last year's £7.6m profits.

But behind the headline numbers Renold's stock looks increasingly attractive, and yesterday's results mark the conclusion of a pivotal year.

After sharp destocking by customers rocked by the economic crisis, market conditions are now improving. Sales and orders increased markedly from the second to the fourth quarters, pushing the company to an operating profit in the second half. And facilities in China and India leave Renold well-positioned to make the most of strong economic growth.

The group has also got its own house in order, bringing net debt down by £91.3m to £17.9m with a £26.9m share placing in December, and meeting its target to cut costs by £13m.

Matthew Peacock, chairman, noted that with a significantly lower cost base and a stronger balance sheet, the company is now looking forward to delivering improved results as the economic climate recovers. Yesterday's 7 per cent drop in the share price only makes the case stronger. Buy.

Ten Alps

Our view: Sell

Share price: 17.5p (-4p)

The multimedia group Ten Alps has endured a tough year but has launched a three-year development plan for growth that banks heavily on Asia to turn its revenue declines around. The company, backed by Bob Geldof, has concentrated on business-to-business broadcasting over the past few years, targeting defensive sectors including Teachers TV. Yet, the AIM-listed business put out fairly anaemic sales figures in its full-year results: revenues dropped 17.6 per cent. It said the numbers were hit by a fall in advertising sales, admittedly during a recession that has proved pretty hard for many in the sector.

So to get things going, the content division hopes in the next three years to "achieve recognition of the inherent value" by splitting out its online and broadcast TV operations. At the same time, the communications division, including trade publishing and media sales, is to slash costs and invest in business development. That said, pre-tax profits for the full year retreated from £3.3m a year earlier to £3.2m, and the group is not expecting growth in this financial year. Ten Alps has left a few TV production industry experts scratching their heads about where it goes from here, and until we see signs of growth, follow the herd and sell.

ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Six of the 76 Goats' cheese samples contained a significant amount of sheep's cheese
food + drink
Russell Brand arriving for the book launch in East London
peopleRussell Brand cancels his book launch debate due to concerns about the make-up of the panel
Arts and Entertainment
JK Rowling will not be releasing a 'romance' novel anytime soon
Life and Style

Of all the computers Apple has ever made there’s only one that Steve Jobs had to sell his car to finance

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

SQL Developer with T-SQL, Watford, Hertfordshire - £350 - £360

£350 - £360 per day: Ashdown Group: SQL Developer with T-SQL, Watford, Hertfor...

Chief Financial Officer

120-150k: Accountancy Action: We are looking for an experienced CFO from a min...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?