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.

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
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

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Recruitment Genius: Administrator - IFA Based

£22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...

Day In a Page

Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions
Major medical journal Lancet under attack for 'extremist hate propaganda' over its coverage of the Israeli-Palestinian conflict

Lancet accused of 'anti-Israel hate propaganda' over coverage of Gaza conflict

Threat to free speech as publishers of renowned medical journal are accused of inciting hatred and violence
General Election 2015: Tories and Lib Dems throw their star names west to grab votes

All noisy on the Lib Dems' western front

The party has deployed its big guns in Cornwall to save its seats there. Simon Usborne heads to the heart of the battle
How Etsy became a crafty little earner: The online market has been floated for £1.2bn, but can craft and capitalism coexist?

How Etsy became a crafty little earner

The online market has been floated for £1.2bn, but can craft and capitalism coexist?
Guy Ritchie is the latest filmmaker to tackle King Arthur - one of our most versatile heroes

King Arthur is inspiring Guy Ritchie

Raluca Radulescu explains why his many permutations - from folk hero to chick-lit hunk - never cease to fascinate
Apple Watch: Will it live up to expectations for the man or woman on the street?

Apple Watch: Will it live up to expectations?

The Apple Watch has apparently sold millions even before its launch tomorrow
Don't fear the artichoke: it's a good cook's staple, with more choice than you'd think

Don't fear the artichoke

Artichokes are scary - they've got spikes and hairy bits, and British cooks tend to give them a wide berth. But they're an essential and delicious part of Italian cuisine
11 best men's socks

11 best men's socks

Make a statement with your accessories, starting from the bottom up
Paul Scholes column: Eden Hazard would be my Player of the Year – but I wonder if he has that appetite for goals of Messi or Ronaldo

Paul Scholes column

Hazard would be my Player of the Year – but I wonder if he has that appetite for goals of Messi or Ronaldo
Frank Warren: Tyson Fury will be closely watching Wladimir Klitschko... when he wins it'll be time to do a deal

Frank Warren's Ringside

Tyson Fury will be closely watching Wladimir Klitschko... when he wins it'll be time to do a deal
London Marathon 2015: Kenya's brothers in arms Wilson Kipsang and Dennis Kimetto ready to take on world

Kenya's brothers in arms take on world

Last year Wilson Kipsang had his marathon record taken off him by training partner and friend Dennis Kimetto. They talk about facing off in the London Marathon
Natalie Bennett interview: I've lost track of the last time I saw my Dad but it's not because I refuse to fly

Natalie Bennett interview: I've lost track of the last time I saw my Dad

Green leader prefers to stay clear of her 'painful' family memories but is more open about 'utterly unreasonable' personal attacks
Syria conflict: Khorasan return with a fresh influx of fighters awaiting the order to start 'shooting the birds'

Khorasan is back in Syria

America said these al-Qaeda militants were bombed out of the country last year - but Kim Sengupta hears a different story
General Election 2015: Is William Cash the man to woo Warwickshire North for Ukip?

On the campaign trail with Ukip

Is William Cash the man to woo Warwickshire North?
Four rival Robin Hood movies get Hollywood go-head - and Friar Tuck will become a superhero

Expect a rush on men's tights

Studios line up four Robin Hoods productions