Investment Column: SABMiller shares have proven resilience

Halfords Group; Aggreko
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The Independent Online

Our view: Hold

Share price: 1079p (+16p)

Two days ago, the drinks and pubs industry warmly welcomed Marston's news that sales in the last two months were up. Nothing to get too excited about, but good news nonetheless.

SABMiller, the brewer of drinks such as Castle and Peroni, which has the advantage of operating in the fast-growing emerging markets, somewhat dampened spirits yesterday, however, saying that it missed volume targets with a 1 per cent fall in the fourth quarter. The last three months of the group's year spoiled what would otherwise have been a good 12 months, with the company blaming the deterioration in economic conditions.

Despite the disappointing update, shareholders have been in clover with SABMiller stock in the past year: the shares are pretty much flat compared to the level of 12 months ago and have charged up 10 per cent in the past month. Indeed, the stock was up slightly yesterday, suggesting that existing investors were not overly concerned about the volume figures.

The investment case, says the company, is that it will hit market expectations on revenue and profit growth, despite the fact that there does not seem to be an end in sight to the poor economic conditions. Furthermore, with other companies in the sector taking on debt for top-of-the-market acquisitions in recent years, SABMiller is comparatively underleveraged, giving it the opportunity for investment.

Six months ago, we said sell, arguing that the consumer markets were becoming increasingly soft. While the share price has risen since last October, we still harbour concerns, and the fact that the stock trades at a premium to the sector, according to watchers at UBS, only makes us more nervous.

Investors could take the opportunity to take profits from SABMiller and forget the worry about the economy. However, the group has shown itself adept at outperforming the market and the shares have a history of resilience, which makes us reluctant to sell. Hold.

Halfords Group

Our view: Buy

Share price: 317.5p (+3.5p)

Those of us who still have jobs are increasingly cycling to work, according to yesterday's pre-close trading update from the bicycle and car parts retailer Halfords.

The group reported a sales increase in cycling and car maintenance products, despite an overall drop in sales last year. Full-year profits will be up after a round of cost-saving job cuts, and the dividend will give a yield of 5 per cent, say Killik Capital analysts.

Generally all pretty good, and with a share price up nearly 20 per cent in the last year, Halfords is undoubtedly a recession winner, out of which investors have done very nicely indeed.

Now might be the time to look elsewhere, however, according to the watchers at Killik, who reckon the share-price charge might be running out of steam: "The shares have had a great run from the 235p level of our note of early January 2009, but at 322p, and 10 times 2010 earnings, we are not inclined to chase them from here."

Those at Investec agree with the recommendation to hold, but point out that the stock still trades at a discount of about 30 per cent to the sector.

We like Halfords, and, despite softer sales numbers, earnings per share will continue growing in the high single digits, says chief executive David Wild, adding he wants to cut more costs.

The company has been a top choice for punters in the recession, and while we do not expect the stock to continue growing at the rate it has over the last few months, we regard Halfords as a defensive pick in what is still a woeful market. Buy.


Our view: Buy

Share price: 533.5p (+7p)

Some accuse the management of the power provider Aggreko of being overcautious. In these markets, that is no bad thing, and it should not bother investors, especially with the shares up nearly 30 per cent in the last quarter.

The company, which provides emergency power and cooling systems, as well as power supplies to major projects in the emerging markets, said yesterday that first-quarter revenues are up 42 per cent on last year, and 17 per cent on a constant currency basis. While still typically cautious about the future, the group says that it expects steady trading throughout the rest of the year.

The experts at Royal Bank of Scotland say that the impressive recent gains made by the stock put the group on a "more appropriate" price earnings rating of around 10 times. They say that the shares may tread water for a time, but with traditionally higher profits in the second half of the year, and with better visibility of earnings, we would buy now and wait for what we think will be a good year for the stock. Buy.