Investment Column: Profit warning makes Charter too risky


Charter

Our view: sell

Share price: 538.5p (-179.5p)

Charter International not only issued a horrible profit warning yesterday, it managed to exacerbate the situation by explaining it with a display of prize corporate gobbledegook.

It began thus: "Divergent trends have emerged in trading and economic conditions over the past months, resulting in variable performances in different market sectors."

In English, that means the tool and equipment maker has been caught in the middle of a perfect storm. The costs of raw materials at its ESAB division, which is focused on welding, cutting and automation, have been rising at a time of increasing competition.

At the same time, Charter's previously pristine balance sheet has been loaded with £150m of acquisition-related debt.

Its other business, Howden, makes and maintains air and gas handling equipment for use in the power, oil and gas, petrochemical and other industries. You might think a company operating in that arena ought to be doing well, given the high price of energy. But Howden is not doing well enough to cushion the ESAB blow.

Howden will produce results "somewhat" in excess of expectations, whatever that means, and is, anyway, much the smaller of the two divisions, with ESAB providing more than 60 per cent of revenues.

In an attempt to ease the pain, the company has promised cost savings of up to £30m, but they won't be fully realised for 12 to 18 months, and they will also require a one-off charge of £25m to be booked.

To be fair, Charter was hardly expensive at less than 10 times 2011 earnings before yesterday's share price crash and lower expectations were factored in, putting it at a discount to the sector. After the forecasts are updated, it could look very cheap.

But yesterday's statement just isn't good enough. Behind the mangled language, it looks like a company in a bit of a state. Those who haven't bailed out should do so until things have settled, notwithstanding the possibility of a predator putting it out of its misery.



Avocet Mining

Our view: buy

Share price: 177.5p (-1.75p)

Avocet Mining announced what was yet another set of positive drill results from its flagship Inata project in Burkina Faso. And yet the gold miner's shares continue to trade at more than affordable levels.

At around 177p apiece, Avocet is trading well below City targets. Collins Stewart, for instance, has a target of 270p. Ambrian is eying 271p. Evolution is more conservative – but even then, its target of 252p still leaves ample room for upside gains. Even if the City targets are off the mark by 50p, say, they point to an excellent buying opportunity, particularly in light of the continued progress at Inata.

Of course, weakness such as this often prompts questions about the likely cause. And in this case, the lack of steam is likely to be down to the hedge Avocet assumed in connection with an acquisition some years ago. That agreement binds it into selling part of its production at fixed prices that are currently below the gold price. Though we would rather that there were no hedge, we'd make two points.

First, gold prices face a headwind as the US quantitative easing programme ends in coming weeks. That could cause volatility and push prices lower. But second, even if gold does not slump, we would highlight that success at Inata will pave the way for higher production, thus diluting the hedge over time. Either way, we'd buy.

Euromoney Institutional Investor

Our view: buy

Share price: 642p (+7p)

With publications such as Institutional Investor and HedgeFund Intelligence, Euromoney is hardly at the glam end of the publishing spectrum. It is, however, at the more profitable end.

The group has found its niche in financial-market customers who are willing to pay, and keep paying, for the content it provides. Yesterday, it boosted that content with the acquisition of Ned Davis Research Group in the US.

Euromoney is to borrow the funds for the £69m deal for an 87 per cent stake in the research company, buying the rest under earn-out agreements. The maximum it can pay is £107m.

The announcement was somewhat light on detail, but analysts at Altium Securities said it "looks like a sensible and complementary deal in an area the group knows well". We agree. And even if you don't follow Euromoney on the news-stand, it may be worth following it on the market.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Life and Style
Suited and booted in the Lanvin show at the Paris menswear collections
fashionParis Fashion Week
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
News
An asteroid is set to pass so close to Earth it will be visible with binoculars
news
Arts and Entertainment
Benedict Cumberbatch has spoken about the lack of opportunities for black British actors in the UK
film
News
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Recruitment Genius: Outbound Sales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Day In a Page

Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project