Investment Column: Rights issue puts DSG on the right path
Friday 01 May 2009
Our view: Buy
Share price: 43p (+5.5p)
Back in December, shares in DSG International, the owner of PC World and Currys, were worth a touch over 9p each and the corporate Grim Reaper was stirring.
What a difference a few months makes. The group's stock was up 14.7 per cent yesterday as the company announced a £311m rights issue to hasten the pace of its store improvement programme, as well as to strengthen its balance sheet. The cash call will ensure DSG's future during and after the recession, says chief executive John Browett.
We would tend to agree with him, and despite the share price growing by two-thirds over the last three months, we do not think it has reached anything like the level of a safe company: certainly it is still well below the 150p or so of 18 months ago.
Debt has increased to pay back some suppliers in light of weaker credit insurance support, which in these markets is never good, but we are inclined to ignore what we consider to be shorter-term lumps.
The shares have been trading with an element of failure in mind, which we are now confident DSG will avoid. Trading conditions may remain uncertain for a while, but with the company's attention now on sleeker stores and the internet, as well as having the cash to do some balance sheet repairs, we think now would be a good time to buy.
Our view: Hold
Share price: 507.5p (-1p)
Keen students of the equities markets will know that there has been something of a recovery in the last few months. Not a chest-thumping, out-of-the-woods, what-was-all-the-fuss-about recovery, but enough to send some of the market's better stocks in a northerly direction.
Sadly for Cadbury shareholders, the chocolate and gum makers' stock has continued to melt. The shares were not helped yesterday when the group issued disappointing first-quarter numbers, saying sales were up 2 per cent, which was below market expectations.
Its chief executive, Todd Stitzer, says there is nothing to worry about, and reaffirmed the group's full-year guidance target, stressing that the company's US business has suffered from unforeseen destocking. It is not expected to be repeated, he says, arguing that the group produced a good set of first-quarter numbers in other regions.
In defence of the relatively tepid share performance in recent weeks, Mr Stitzer points out that the stock has outperformed the market in the past year. Missing out on the growth of recent weeks is down to the group being perceived as a defensive stock, and investors are switching into more cyclical shares, he says. That may not sound too encouraging to potential investors, even if the Cadbury boss thinks the shares are undervalued.
In fairness to Mr Stitzer, a number of analysts agree with him. Those at Panmure Gordon say that "trading on a [price-earnings multiple of]... 12.1 times for 2009 and an enterprise value to Ebitda of 8.4 times in 2009, falling to 7.4 times in 2010, we continue to see value at current levels."
In these still delicate markets, however, we would be inclined to agree with watchers at Investec, who like the group, but "for the stock to progress we think more positive news on US demand will be needed at the [first half] pre-close". Hold.
Our view: Hold
Share price: 126p (-0.5p)
In an effort to save the pennies, we are all going downmarket, if own-brand maker McBride's trading statement, published yesterday, is to be believed.
The group, which makes own-label products for Tesco and the French supermarket chain Carrefour, said that trading in the year to 29 April was "satisfactorily ahead of expectations". Its chief executive, Miles Roberts, says he is happy with consensus profits forecasts being increased to £33m yesterday.
Investors have shared in the spoils over the past month, with the stock trading up by more than 5 per cent but, according to the house broker, Investec, the shares are now trading pretty much in line, and the optimum time to buy may have been missed.
The experts reckon the shares will top out at 135p, just a touch over last night's closing price, adding that the stock already looks a bit pricey. "Whilst this price-earnings ratio is above the sector average of eight times by some margin, it is not out of line with the [fast-moving consumer goods] stocks that are trading well," says Investec.
We rather like McBride, as must shareholders that saw the stock rise by 23 per cent over the past year. There may be little relative benefit had from buying the shares today, however. Hold.
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