Investment Column: Profit warning makes Charter too risky


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
ebooksAn introduction to the ground rules of British democracy
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

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Day In a Page

John Palmer: 'Goldfinger' of British crime was murdered, say police

Murder of the Brink’s-MAT mastermind

'Goldfinger' of British crime's life ended in a blaze of bullets, say police
Forget little green men - aliens will look like humans, says Cambridge University evolution expert

Forget little green men

Leading evolutionary biologist says aliens will look like humans
The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

The Real Stories of Migrant Britain

An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

Dying dream of Doctor Death

Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

39.8 degrees recorded on Tube

There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

Computerised cooking is coming

From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

Jessie Cave's feminist cartoons

The Harry Potter star tells Alice Jones how a one-night stand changed her life
Football Beyond Borders: Even the most distruptive pupils score at homework club

Education: Football Beyond Borders

Add football to an after-school homework club, and even the naughtiest boys can score
10 best barbecue books

Fire up the barbie: 10 best barbecue books

We've got Bibles to get you grilling and smoking like a true south American pro
Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

Nick Bollettieri's Wimbledon Files

Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

‘This is one of the best McLaren teams ever – we are going to do it’

Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most