Investment Column: Rights issue puts DSG on the right path

Cadbury; McBride

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.

Life and Style
videoJapanese prepare for the afterlife by testing out coffins
Arts and Entertainment
Harrison Ford attends Blade Runner at Target Presents AFI's Night at the Movies at ArcLight Cinemas on 24 April, 2013 in Hollywood, California
film... but Ridley Scott won't direct
Hughes is hit by a bouncer from Sean Abbott
cricketStephen Brenkley on batsman's tragic flaw that led to critical injury
Dejected England players applaud the fans following their team's 3-0 defeat


Actress isn't a fan of Ed Miliband

ebooksNow available in paperback
Life and Style
Stefan Gates with some mince flies
food + drink
Arts and Entertainment
Rooney Mara plays a white Tiger Lily in forthcoming film Pan
filmFirst look at Rooney Mara in Pan
Life and Style
Customers browse through Vinyl Junkies record shop in Berwick Street, Soho, London
Life and Style

Do you qualify – and how do you get it?

Life and Style
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

h2 Recruit Ltd: Business Development Manager - HRO - £70k+ ote

£35000 - £450000 per annum + £3k car, £70k ote: h2 Recruit Ltd: Do you want to...

Citifocus Ltd: Newly Qualified Accountants - Risk Mgmt

£Attractive Package: Citifocus Ltd: Prestigious financial institution seeks to...

Citifocus Ltd: Operational Risk Analyst

£Negotiable: Citifocus Ltd: Experienced operational risk professional with ban...

h2 Recruit Ltd: Business Development - Telecommunications - £50,000 OTE

£25000 per annum + £50,000 OTE: h2 Recruit Ltd: London, Reading , Southend, Al...

Day In a Page

Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

Our partner charities help veterans on the brink – and get them back on their feet
Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

Putin’s far-right ambition

Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

Escape to Moominland

What was the inspiration for Finland's most famous family?
Nightclubbing with Richard Young: The story behind his latest book of celebrity photographs

24-Hour party person

Photographer Richard Young has been snapping celebrities at play for 40 years. As his latest book is released, he reveals that it wasn’t all fun and games
Michelle Obama's school dinners: America’s children have a message for the First Lady

A taste for rebellion

US children have started an online protest against Michelle Obama’s drive for healthy school meals by posting photos of their lunches
Colouring books for adults: How the French are going crazy for Crayolas

Colouring books for adults

How the French are going crazy for Crayolas
Jack Thorne's play 'Hope': What would you do as a local politician faced with an impossible choice of cuts?

What would you do as a local politician faced with an impossible choice of cuts?

Playwright Jack Thorne's latest work 'Hope' poses the question to audiences
Ed Harcourt on Romeo Beckham and life as a court composer at Burberry

Call me Ed Mozart

Paloma Faith, Lana del Ray... Romeo Beckham. Ed Harcourt has proved that he can write for them all. But it took a personal crisis to turn him from indie star to writer-for-hire
10 best stocking fillers for foodies

Festive treats: 10 best stocking fillers for foodies

From boozy milk to wasabi, give the food-lover in your life some extra-special, unusual treats to wake up to on Christmas morning
Phil Hughes head injury: He had one weakness – it has come back to haunt him

Phil Hughes had one weakness – it has come back to haunt him

Prolific opener had world at his feet until Harmison and Flintoff bounced him
'I have an age of attraction that starts as low as four': How do you deal with a paedophile who has never committed a crime?

'I am a paedophile'

Is our approach to sex offenders helping to create more victims?
How bad do you have to be to lose a Home Office contract?

How bad do you have to be to lose a Home Office contract?

Serco given Yarl’s Wood immigration contract despite ‘vast failings’
Green Party on the march in Bristol: From a lost deposit to victory

From a lost deposit to victory

Green Party on the march in Bristol
Putting the grot right into Santa's grotto

Winter blunderlands

Putting the grot into grotto
'It just came to us, why not do it naked?' London's first nude free runner captured in breathtaking images across capital

'It just came to us, why not do it naked?'

London's first nude free runner captured in breathtaking images across capital