Investment Column: Rolls-Royce deserves its premium rating

Huntsworth; Restaurant Group

Our view: Buy

Share price: 649p (+9p)

It comes as little surprise to us that Rolls-Royce has bounced back from its problems last November, when a Qantas Airbus was forced into an emergency landing in the wake of the near disintegration of one of the engineering group's Trent 900 turbines.

The company saw £1bn wiped off its value as a result of that incident, but since then the shares have recovered ground. They have also bounced back from the recent stock market convulsions, which hit valuations more or less indiscriminately.

Yesterday, the FTSE 100-listed company added to its portfolio of businesses, buying R Brooks Associates, a specialist civil nuclear reactor services business in the United States.

Despite the concerns raised about the nuclear industry in the wake of the recent high-profile problems in Japan, we still think it that boasts a strong outlook in the medium to long term. Yes, there will be ups and downs along the way but, one way or another, we need energy that doesn't heat up the planet. Like it or not, nuclear can help meet this need.

So, this looks to be a sensible move by Rolls-Royce. We were buyers at 599.5p in November and the shares have performed well for us since then. They were a cheaper buy a few weeks ago and, based on their earnings multiples, aren't exactly a bargain at 14.6 times this year's forecasts, falling to 13 times on the estimates for 2012, with a prospective yield of 2.7 per cent, then 2.9 per cent.

That puts the company slightly ahead of global peers but, given this organisation's diversified businesses, strong management and robust balance sheet, we think that this premium is deserved.

Rolls comfortably met hopes when it released its half-year results in July and we don't see it letting investors down any time soon. As such we'd keep on buying.

Huntsworth

Our view: Buy

Share price: 60p (-1.5p)

Good things come to those who wait, or so goes the old saw. But stock market investors, an impatient lot at the best of times, appear to be in no mood to hang around Huntsworth, the public relations group that has seen its shares trade down in the wake of last week's results.

On the face of it, the figures did look far from inspiring. The company, which counts Grayling and Citigate among its brands, said pre-tax profits had declined over the first half of the year, while its margins narrowed. Crucially, however, it added that business would recover in coming months and over the start of next year as recently bagged accounts begin to bear fruit.

The wins are "only now emerging from the lengthy client procurement process and frustratingly will only make a very small contribution to 2011 results", said Huntsworth. This delay was also behind the softer margins, as Huntsworth has been readying itself for the new business. To put it another way, the figures should stabilise once the revenues begin flowing in. This is hardly doom and gloom.

So far, so straightforward. But – and here is our key concern – much of the Western world appears to be slowing, and we worry about the impact of another downturn on its clients. To resort to another cliché, if they sneeze, Huntsworth could end up with a cold.

On the other hand, it has won some good accounts and – here is the key attraction – it trades on multiples of around six times the estimates for next year. All the while, it boasts a forecast yield of around 6 per cent. We are happy to wait for the rebound.

Restaurant Group

Our view: Buy

Share price: 290p (+4.1p)

Amid all the grim talk about the high street, it is easy to forget many businesses that rely on consumers opening their wallets on a regular basis are doing rather well.

Indeed, away from the plummeting sales of big ticket furniture and washing machines, some restaurants that offer individuals good food for well under £10 are thriving.

Take the Restaurant Group, which operates the Frankie & Benny's, Chiquito and Garfunkel's brands. It showed good form in the half year to early July, growing adjusted pre-tax profits by 7.7 per cent to £24.6m.

The group also grew its sales on outlets open at least a year by 3 per cent, adding it had continued this momentum since the period end, despite the riots in August and downbeat consumer spending.

On a forward earnings multiple of just over 11, we think the Restaurant Group is worth a nibble.

Voices
A Russian hunter at the Medved bear-hunting lodge in Siberia
Save the tigerWildlife charities turn to those who kill animals to help save them
News
Davis says: 'My career has been about filling a niche - there were fewer short actors and fewer roles – but now I'm being offered all kinds of things'
PeopleWarwick Davis on Ricky Gervais, Harry Potter and his perfect role
News
i100
Sport
Frank Lampard will pass Billy Wright and equal Bobby Charton’s caps tally of 106 caps against
sportFormer Chelsea midfielder in Etihad stopgap before New York contract
PROMOTED VIDEO
Arts and Entertainment
The first film introduced Daniel Radcliffe to our screens, pictured here as he prepares to board the train to Hogwarts for the first time.
booksHow reading Harry Potter helps children grow up to be gay-friendly
Arts and Entertainment
A scene from Aladdin is performed at the Tony Awards in New York in June
theatreBrit producer Lythgoe makes kids' musical comedy a Los Angeles hit
Sport
Usain Bolt of Jamaica smiles and shakes hands with a competitor after Jamaica won their first heat in the men's 4x100m relay
sport
News
Chancellor George Osborne, along with the Prime Minister, have been 'complacently claiming the economy is now fixed', according to shadow Chancellor Ed Balls
i100... which is awkward, because he is their boss, after all
Life and Style
A small bag of the drug Ecstasy
Health
Life and Style
Floral-print swim shorts, £26, by Topman, topman.com; sunglasses, £215, by Paul Smith, mpaulsmith.co.uk
FashionBag yourself the perfect pair
News
news
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Netherlands' goalkeeper Tim Krul fails to make a save from Costa Rica's midfielder Celso Borges during a penalty shoot-out in the quarter-final between Netherlands and Costa Rica during the 2014 FIFA World Cup
newsGoalkeepers suffer from 'gambler’s fallacy' during shoot-outs
News
people
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmReview: A week late, Secret Cinema arrives as interactive screening goes Back to the Future
Extras
indybest
News
i100
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

Financial Analyst - Forecasting - Yorkshire

£300 - £350 per day: Orgtel: Financial Analyst, Forecasting, Halifax, Banking,...

Business Architect - Bristol - £500 per day

£500 per day: Orgtel: Business Architect - Banking - Bristol - £500 per day A...

Regulatory Reporting-MI-Bank-Cardiff-£300/day

£200 - £500 per day + competitive: Orgtel: I am currently working on a large p...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Day In a Page

Save the Tiger: Meet the hunters tasked with protecting Russia's rare Amur tiger

Hunters protect Russia's rare Amur tiger

In an unusual move, wildlife charities have enlisted those who kill animals to help save them. Oliver Poole travels to Siberia to investigate
Transfers: How has your club fared in summer sales?

How has your club fared in summer sales?

Who have bagged the bargain buys and who have landed the giant turkeys
Warwick Davis: The British actor on Ricky Gervais, how the Harry Potter set became his office, and why he'd like to play a spy

'I'm a realist; I know how hard this business is'

Warwick Davis on Ricky Gervais, Harry Potter and his perfect role
The best swim shorts for men: Bag yourself the perfect pair and make a splash this summer

The best swim shorts for men

Bag yourself the perfect pair and make a splash this summer
Has Ukip’s Glastonbury branch really been possessed by the devil?

Has Ukip’s Glastonbury branch really been possessed by the devil?

Meet the couple blamed for bringing Lucifer into local politics
Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup