Investment Column: Overseas growth makes Inchcape a hold

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The Independent Online


Our view: Hold

Share price: 28.26p (-1.27p)

At first glance, the annual results published by Inchcape yesterday look stonking. The car dealer's profits came in at £137m, a whopping 27 per cent higher than last year's £108m. But stripping out the distortion from the one-off charge that pushed down the 2008 figures, the picture is less rosy. Revenues were down by 11 per cent to £5.6bn for the 12 months and, crucially, pre-tax profits without exceptionals were down by 19 per cent, dropping from £191m to £155m.

Even if the results were not as good as they initially seem, Inchcape has still turned in a solid performance given the recessionary wallop to the global car industry. It moved swiftly, cutting more than 2,000 jobs and closing 31 sites as well as raising £234m through a rights issue. But despite the strong improvements in the market in the second half of 2009, the prospects for this year remain muted.

André Lacroix, the chief executive, said: "We remain cautious for 2010 and do not expect a global recovery to start until well into the second half of this year given consumer confidence is still weak and unemployment continues to rise in many of our key markets."

The UK, which was performing very well thanks to the Government's scrappage incentive scheme, is expected to decline again this year, as are the Greek, Singaporean, Eastern European and Russian markets. Inchcape is reasonably insulated by its Hong Kong and Australian businesses, where growth is expected to offset the fluctuations elsewhere.

But for all the talk of being "uniquely positioned to benefit from the recovery in global demand", the board is not recommending a dividend payment this year. And although Panmure Gordon's estimates produce a price-to-earnings multiple of 13 times next year's forecasts, even with a slight upward tweak to their target price, we still have grave reservations about the industry as a whole. Five months ago we sold Inchcape at 35.5p. At the new level we feel there's enough life in the international business to make a small holding worth while. So hold.


Our view: Buy

Share price: 224p (+16.7p)

Interserve, the services, maintenance and building group, saw its shares soar after posting full-year figures yesterday. Pre-tax profits and earnings were up, the dividend was raised, and in what was one of the key takeaways for us, there was progress on the pension deficit. The company has already taken steps to plug the shortfall and, as Collins Stewart noted, yesterday's announcement of annual contributions to close the deficit over an eight-year period puts uncertainty to bed.

Elsewhere, the company struck a cautious note on the outlook, saying the year ahead will be challenging. We agree. The worst of the slump is over, but the upturn has yet to take root. Those thinking of investing in this sector must also keep the prospect of public sector spending cuts in mind. That said, Interserve, while active in the UK, also operates beyond these shores. In particular, it has plans to expand further in the Middle East. Operations there should offset any unexpected weakness in the UK.

But all this is only part of the story. The stock trades on a very undemanding valuation of 5.4 times Collins Stewart's estimates for the full year. That falls to 4.9 times the broker's forecasts for 2011, and then to 4.7 times on the numbers for 2012. All the while, the yield stands at around 9 per cent. Based on that, we say buy.


Our view: Hold

Share price: 129.4p (+12.6p)

Oops! If there is one thing that investors really don't like it is a cut to dividends. That is what was served up to Laird's backers yesterday when the FTSE 250-listed electronics group said that 2009 pre-tax profits, at £26.5m, were 56 per cent lower than last year, thanks to a credit crunch-inspired hiatus in demand.

There was some good news: along with many others, Laird, which supplies the likes of Nokia and Samsung with the clever bits that go into mobile phones and laptop computers, said the interest in its components had increased in the second half of last year. A rights issue has cleared any problems that were lurking on the balance sheet.But there was more bad than good in yesterday's announcement. The dividend cut, from 10.31p a share in 2008 to 6p for 2009, was bigger than expected, and comes just as a number of other companies are reinstating investor payments.

However, the yield is still a fairly healthy 5.6 per cent, and the shares trade on a tame 2010 price to earnings ratio of 11.6 times. This could be indicative of weakness, rather than because there is an inherent undervaluation in the stock, but we'd give Laird the benefit of the doubt, for now. Hold.