Investment Column: Rolls-Royce to recover and fly once more

Ted Baker; Speedy Hire


Our view: Buy

Share price: 599.5p (+10.5p)

More than £1bn was wiped off the value of Rolls-Royce after a Qantas Airbus was forced into an emergency landing in the wake of the near disintegration of one of its Trent 900 engines. This was despite the company saying last week that the financial impact would be limited (analysts came up with about £25m after putting what the company said into their spreadsheets).

Part of the reason for the fall in its share price was fears about the long-term impact of the near-disaster and whether it might affect other parts of the business. At present, that seems very unlikely. Rolls-Royce appears to have got a grip on the problem, having worked out what caused it and set in train measures to correct it within eight days. In this case the shares, which have yet to fully recover their poise, could bounce back.

The news from the company's array of other businesses has been positive. Indeed, its performance has helped to cushion the blow caused by the engine difficulties, which should be only a short-term issue if it handles things correctly from here.

And yesterday the company added another order to its steadily growing docket – albeit for Airbus engines too, though not the same ones that caused the problem. Rolls-Royce is still not the cheapest of shares, however, trading on 15 times this year's earnings based on consensus forecasts while offering a moderate prospective yield of 2.7 per cent. But you expect to pay a premium for quality. There is still a risk of complications about those engines, but we would be willing to take it. These are shares to buy.

Ted Baker

Our view: Hold

Share price: 640p (+19.5p)

Ted Baker continues to impress, with sales up just more than 20 per cent during the past quarter, according to the interim management statement the retailer released yesterday. The figure was artificially high, with a 76 per cent increase, year on year, in less profitable wholesale sales. Part of the reason for this is the timing of buyers' purchases and the strength of the pound. Still, retail sales were up by almost 9 per cent on the same quarter of last year, which is none too shabby given the icy headwinds blasting down the high street just now.

Ted Baker is no flash in the pan, having increased earnings per share by at least 10 per cent a year in each of the past 10 years. Its secret is a sensibly paced expansion, both domestically and in international markets, that has not compromised the brand's value.

But investors know this, and that's the downside to the stock. The broker Execution Noble puts it on a valuation of about 14 times 2011 earnings, broadly in line with its long-term average, and at a small premium to comparable businesses. On the upside, there's an outside chance of a surprise, with new stores in the Middle East and the Far East picking up pace. Still, the UK outlook, even for this premium brand, is unnerving, so hold.

Speedy Hire

Our view: Buy

Share price: 26.25p (+1.75p)

Speedy Hire shares were in demand yesterday. Gains were triggered by the tool hire firm's half-yearly results, which revealed a bigger interim loss but cheered investors with news of recovering trends. Speedy Hire said revenues, average hire rates and volume trends in Britain were all moving in the right direction. While factors such as the group's on-site facilities at the Olympics park, its contract wins in the construction market and beyond, and its growing international presence all bode well, the investment case rests on the valuation which is cheap.

Speedy is rated in line with its sector peer, Lavendon, which is on 6.6 times forecast 2013 earnings. However, Speedy sits on a 20 per cent discount to the value of its net tangible assets (what it owns, its orders and so on). Lavendon trades at a 40 per cent premium. Speedy can catch up, so buy.

News
people'It can last and it's terrifying'
Sport
Danny Welbeck's Manchester United future is in doubt
footballGunners confirm signing from Manchester United
Sport
footballStriker has moved on loan for the remainder of the season
Sport
footballFeaturing Bart Simpson
PROMOTED VIDEO
New Articles
Olivia Colman topped the list of the 30 most influential females in broadcasting
tv
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
News
The five geckos were launched into space to find out about the effects of weightlessness on the creatures’ sex lives
i100
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Sport
Andy Murray celebrates a shot while playing Jo-Wilfried Tsonga
TennisWin sets up blockbuster US Open quarter-final against Djokovic
Arts and Entertainment
Hare’s a riddle: Kit Williams with the treasure linked to Masquerade
booksRiddling trilogy could net you $3m
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
ebooksAn unforgettable anthology of contemporary reportage
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
News
i100
Life and Style
The longer David Sedaris had his Fitbit, the further afield his walks took him through the West Sussex countryside
lifeDavid Sedaris: What I learnt from my fitness tracker about the world
Arts and Entertainment
Word master: Self holds up a copy of his novel ‘Umbrella’
booksUnlike 'talented mediocrity' George Orwell, you must approach this writer dictionary in hand
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

SQL Implementation Consultant (VB,C#, SQL, Java, Eclipse, integ

£40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...

Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

Technical Software Consultant (Excel, VBA, SQL, JAVA, Oracle)

£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...

SQL DBA/Developer

£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...

Day In a Page

'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering