Investment Column: Prudential shares are the best in class

Euromoney; BTG
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The Independent Online

Our view: Buy

Share price: 436.5p (+27p)

Back on 6 March, analysts at Sanford Bernstein cut their target price for the life insurance group Prudential, sending the stock down to just over £2. Investors who bought on the day have been in clover ever since, with the shares up by more than 20 per cent in the past month alone.

The group said yesterday that it was satisfied despite falls in first-quarter sales (by 11 per cent in its key Asian markets), given the "exceptional global economic conditions". The focus remains on ensuring that cash and capital reserves are strong, the group said. Caution, it would appear, remains the watchword.

Despite the Asian sales slowdown, which was matched by a 5 per cent fall in the UK, analysts generally continue to back the group, and the shares were up yesterday. The company claims to be increasing market share, which should encourage investors, and while the sector has largely struggled in recent months, we would favour the Pru over most others.

Analysts at MF Global agree, saying that overall sales of £697m far outstripped their estimates and that the stock is still extremely cheap, despite the gains made in recent weeks. The watchers reckon the shares will reach the dizzying heights of 850p, a huge 107 per cent potential increase on Wednesday evening's closing price: "We continue to expect Prudential to outperform the competition in terms of sales in each of its territories at the same time as seeing improving earnings, cash generation and solvency. It is for these reasons that it continues to be a top pick in the sector."

We are not exactly keen on life insurers as a whole, but we do think that Prudential is leaving others in its wake. The fact that sales are down in some key markets is a worry, and while we are not sure the shares will meet MF's target any time soon, we do think they are undervalued. Buy.


Our view: Hold

Share price: 236p (-18p)

Logic would tell you to sell Euromoney shares. The publisher depends heavily on the financial services industry for subscriptions, advertising, and conference attendance and sponsorship.

And yet investors that have held their nerve have done well compared to those holding other publishers in recent months. We last looked at the stock in November and after a bit of turbulence in March, the shares are now trading at about the same level.

Yesterday's interim results were a mixed bag, with first-half revenues up 4 per cent but adjusted pre-tax profits down 2 per cent. It was probably the 9 per cent fall in revenues in April, and predictions of a tough second half, that accounted for the 7.1 per cent drop during trading yesterday.

The group argues that it cut costs early and as such it is well placed for any recovery. It has also put more emphasis on subscriptions and was able to report that subscription revenues were up 35 per cent in the period, and now make up 47 per cent of income.

Anyone undecided about whether or not to take a punt should consider Numis's reaction to yesterday's analysts' meeting. After initially advising clients to add the stock, they revised back down to hold, saying the group's new dividend policy was not to their liking. "Moving to three times dividend cover would suggest a dividend of little more than 10p, giving a yield of 4 per cent. We viewed the yield support from the dividend as a key factor in the Euromoney investment case. The new dividend policy removes a key element of the Euromoney investment case," they said before lowering the target price to 237p.

The dividend is a disappointment, but Euromoney's share price is proving resilient in these markets. Hold.


Our view: Buy

Share price: 152.25p (-2.75p)

The changes at BTG since the arrival of Louise Makin as chief executive four years ago are startling.

The company says that by 2011 it will be a full scale specialty pharmaceutical group, which is a long way from the intellectual property investor that Ms Makin started leading at the end of 2004. She says it took a long time to persuade investors that the group was changing, but most were convinced when the group bought the biotech firm Protherics last December, and moved to the FTSE 250.

Convinced they were, with the shares up nearly a third in the past year. Yesterday the group reported full-year revenues were also up, by 13.1 per cent to £84.8m.

We like the company, and more importantly for investors, expect the stock to carry on its upward trajectory. So do watchers at KBC Peel Hunt, who reckon the stock will reach 164p. Even if that is not a great leap from today's levels, we generally think punters should buy a growing stock.