Investment Column: Pennon investors get best of both worlds

Laura Ashley Holdings; Penna Consulting


Our view: Buy

Share price: 481.25p (+0.25p)

There are two good reasons for buying Pennon shares. Firstly, we have argued for some time that the water utility groups are a safe bet during a recession. Yes, there is some risk to investing in the industry since all are waiting for the water regulator, Ofwat, to approve their business plans for the five years between next year and 2015, but for investors the water groups have generally been a safe haven during the recession.

Of all the water companies, we like Pennon's South West Water (SWW) best. The group operates away from major manufacturing centres and has been hit less by the newly unemployed defaulting on their bills. SWW's bad debts were only £1.8m in 2008, according to yesterday's preliminary results.

And secondly, for punters that reckon we should all be backing something a bit racier, Pennon is not just a water company. Viridor, the group's waste management arm, which recycles rubbish and generates energy that is then sold to the grid, is flying. The division's profits were up 12.7 per cent last year, with the company expected to benefit from increased energy output.

The analysts at Evolution reckon that the shares are cheap, but we would not necessarily agree and actually see the stock, which trades at 13.5 times 2009 earnings, as more expensive than several of the other water companies, such as United Utilities and Severn Trent.

We would still be buyers. Yes, the other water companies have broadly the same defensive characteristics as SWW, but we are firm backers on the growth prospects of Viridor, which we only see as benefiting from extra government spending on waste management and from additional energy production projects.

Pennon's shares have touched the dizzy heights of 658p in the last 12 months. We would expect to see them in similar territory before too long. Buy.

Laura Ashley Holdings

Our view: Hold for now

Share price: 17p (+1.5p)

Laura Ashley went some way to proving yesterday that not all retailers are struggling to keep their heads above water. The clothing and soft furnishings outfit said that sales in the first 17 weeks of the year increased by 8.4 per cent, despite the tales of acute woe from most others in the sector.

It was not just a fluke, said the group, which argues that the impressive numbers are the result of extra advertising spending and greater floor space allocated to sales. "Despite the challenging economic environment, the board remains cautiously optimistic for the current year," the company said yesterday.

The analysts at its house broker, Numis, raised their January 2010 pre-tax profit estimates on the strength of yesterday's results, and said that they viewed the projection as conservative "and... that earnings risk remains firmly to the upside".

We would still be very cautious about most retailers, however, and would certainly need more than 17 weeks worth of data before buying.

Hats off to Laura Ashley for its performance, but we reckon investors should give it until at least the year end before buying, especially with the unemployment rate not expected to slow for some time. The stock was up 9.7 per cent as the market responded well to yesterday's good news, putting the share price beyond Numis' price target of 16p. Hold for now.

Penna Consulting

Our view: Hold for now

Share price: 187.5p (+20p)

Never let it be said that a recession is wholly bad for business. Penna Consulting, a human resources company, posted impressive full-year results yesterday, with profits up a striking 176 per cent. All-importantly, the total dividend will rise 6p, up from 2p last year.

How so? Its chief executive, Gary Browning, says that the creeping unemployment rate has helped as client companies have asked Penna to advise on strategy with fewer people, while the group has also helped customers to move to less costly locations.

For investors, the dividend hike alone will attract some. Buyers should be aware, however, that until yesterday's 11.9 per cent jump in the share price, the market's appreciation of the group had cooled after the shares spiked in February when Penna said that its annual numbers would beat expectations.

We would worry that the stock will slide after the hullabaloo of yesterday's numbers dies down. We do agree with the house broker, Collins Stewart, when they say that trading on a 2009 price-earnings ratio of 8.6 times is hardly demanding, but we are not sure the shares will garner enough support to reach the watchers' target of 280p.

Generally speaking, investors should back winning stocks, but we would be tempted to wait to see if the shares fall back after yesterday's gains before buying.

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
tech

Board creates magnetic field to achieve lift

News
There have been various incidents of social media users inadvertently flouting the law
news

Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
News
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
i100
Sport
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

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?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London