Investment Column: Overseas push is a winner for Mothercare

Britvic; GW Pharmaceuticals

Our view: Buy

Share price: 423p (+7p)

The conventional wisdom is that parents are never likely to stop spending money on their children, even in a recession.

Yesterday's final results from the children's goods retailer Mothercare underlined that argument, even if the company would claim that it is being proactive in ensuring it more than survives the downturn. A push for more internet sales and opening more stores abroad contributed to a 12.4 per cent increase in full-year pre-tax profits and, more importantly for investors, a 20.8 per cent jump in the dividend.

The future, says its chief executive Ben Gordon, is more overseas stores, especially in China, knocking down rental costs in the UK, and maintaining internet sales growth, which is up 25 per cent in the past year.

Clearly there is much to shout about and investors would be crazy not to consider the shares. Mr Gordon says the stock has outperformed the market in the past year, but we are disappointed the shares were up just 3 per cent in the past quarter, before yesterday's results. The stock trades at a discount, which is good news for those looking for a bargain, but we would also worry about the market not fully getting the story.

Maybe it is the pressure on margins as a result of sterling's weakness against the dollar (the group sources much of its stock in East Asia) that has made some investors more nervous about the stock in recent weeks.

Whatever the reason, we would argue that yesterday's numbers more than compensate for any residual concerns about the group and think that, at its current level, the share price is at an attractive entry point. Buy.


Our view: Buy

Share price: 303p (+34.25p)

Those looking for a solid investment, a strong dividend and the potential for share price growth, look no further than Britvic, the FTSE 250-listed soft drinks company that makes Tango and Robinsons squash, and which has the licence to sell Pepsi in the UK.

At first glance, there cannot be a more compelling investment case: the group posted a better than expected 16.3 per cent increase in half-year pre-tax profits yesterday and its chief executive, Paul Moody, says there is a recovery under way in the soft drinks market. Despite a 12.7 per cent rise in the share price yesterday, the stock is still undervalued.

It is true that the shares have not performed as well as others during the recovery of recent weeks, but you cannot really argue with the facts. Mr Moody says he is comfortable with the £75m full-year profits consensus view of the analysts, arguing the better health in the sector will last.

UBS's watchers argue the shares are a buy, especially given the stock's recent lack of traction. "Year to date, Britvic has outperformed the market by 7 per cent, but underperformed the beverages sector by 9 per cent. Britvic trades on 9.9 times 2009 price- earnings, a 22 per cent discount to the sector, and offers a 12 per cent free cashflow yield," notes UBS. A solid buy then, especially with a dividend increase.

Perhaps the only fly in the ointment is that the UBS experts have a 12-month price target of just 280p. We think they will have to revise that soon, however, and would be at the front of the queue to buy the shares. Buy.

GW Pharmaceuticals

Our view: Buy

Share price: 82.75p (+3.75p)

As of yesterday, GW Pharmaceuticals joined a select band of biotech companies. The group posted its maiden profit as part of its interim results, which also confirmed the news of a few weeks ago that Sativex, its cannabis-based multiple sclerosis treatment, had passed all-important final phase drug trials. GW has submitted the data for approval in the EU, with the pharma giant Bayer licensed to market the drug.

The shares are up 122 per cent in the last three months alone and while some may be concerned that the stock might run out of steam, we would argue that it will inevitably strengthen as sales of Sativex grow, and as it meets requirements to treat other conditions, such as the pain caused by cancer. The analysts at KBC Peel Hunt agree: "We continue to see further upside in the coming months as Sativex is prepared for commercial launch and is eventually approved by the main European regulators, [we] keep our 120p price target. With an additional £10m milestone to come from Bayer for UK approval, GW's cash balance remains strong."

Hindsight is a wonderful thing, and of course investors would have been better buying the shares three months ago. We would argue, however, that they are still worth buying. Buy.

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