Investment Column: Plenty of fizz left in Greene King's shares

Bango; Silverdell
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The Independent Online

Our view: Buy

Share price: 420p (+18.7p)

It is time that investors raised a glass to the pubs group Greene King. In an industry that has suffered in recent years from falling beer sales, dreadful weather and the smoking ban, some operators have struggled to gain traction – many were not helped by the rush to securitise debts, which turned out to be a bad bet.

Greene King has put in some stellar numbers, however. The company, which has nearly 2,500 pubs in its UK estate, posted impressive results yesterday, with half-year profits rising to £62.4m from £60.7m a year ago.

Punters were clearly pleased and supported the group's expansion plan, also announced yesterday, which sent the shares up by 4.7 per cent. A number of analysts were busy scribbling away and upgrading the stock. "On 8.6 times prospective Ebitda, the shares are not on the premium to peers [8.6 times] which they deserve," said the watchers at KBC Peel Hunt. "They trade close to total net asset value of about 400p, but twice tangible NAV of 208p. The 2010 [price-earnings rating] of 9.6 times looks cheap for a company delivering a 5.6 per cent yield." KBC duly changed its advice on the stock from "hold" to "buy".

On the downside, Greene King's shares have not excited the market for most of the past year, partly because the pubs industry has been an investment laggard. If the unemployment rate continues its upward trajectory, there will be further pressure.

In general, we are more than a bit nervous about pubs but would highlight Greene King as one of the winners. The experts at Evolution agree, saying: "Greene King continues to steer a 'prudent' path through the recession. It was 'prudent' to do a rights issue and it is 'prudent' to spend the proceeds slowly. The situations at Punch and Mitchells and Butlers demand such caution as further opportunities may well appear. The top end of the business is trading well but problems bedevil the tail. It's a 'prudent' holding." We would say buy.


Our view: Hold

Share price: 49.52p (+1.02p)

Bango has never made a profit but deserves a lot of credit for holding on long enough to celebrate its tenth anniversary this year while rivals have fallen by the wayside. The new house broker reckons the second half of the financial year could bring its maiden profit and rising profits and developments in the wider market means they might just be right.

Bango's stock was listed on Aim in 2005 to help fund its move into the US. Its software allows mobile phone customers to make online payments for services including games and ringtones, either through credit card payments or by tacking the payment on to customers' monthly bills. It also has an analytics division that provides data for companies.

It struggled initially because the telecoms industry and its customers did not adopt mobile internet as soon as expected, but Bango now has traction in the market thanks to the rise and rise of smartphones. It has helped that it has signed agreements with most of the major operators, and recently secured deals in the US with Fox and Turner Broadcasting. The group's revenues in the first half were up 83 per cent to £12.32m, and losses fell from £590,000 to £130,000. Yet the stock is tightly held and the price has remained around its current level for a while. Given the volatile state of the markets it looks risky, so it you are looking for more Bango for your buck, hold on for now.


Our view: Buy

Share price: 9.5p (unchanged)

Like the asbestos Silverdell removes, the company's stock has been toxic. The group, which specialises in removing hazardous waste, particularly asbestos, should have had a good year given its reliance on legislation and longer-term contracts, but crippling levels of debt have done for the stock over the past year, with the shares falling in value by 54 per cent.

Yesterday's full-year numbers did show an improvement: Silverdell's adjusted profits were up and, crucially, the debt was down to more manageable levels following a rights issue earlier in the year. According to the Barking-based company's house broker, Collins Stewart, the shares are cheap. "Trading on just seven-times current year earnings, we believe the shares offer an attractive recovery play and have upgraded our target price from 13p to 16.25p," it said.

That is fine and well, but even Silverdell's executive chairman Stuart Doughty admits that the stock is illiquid and the market may need a series of positive results before backing the company. We, however, are not as concerned as Mr Doughty and would take the opportunity to buy what is an undervalued share. Buy.