Investment Column: Shock-free C&W is a safe haven for buyers

CSR; Elan Corporation
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The Independent Online

Our view: Buy

Share price: 151p (-12.8p)

Yesterday's trading statement from the telecoms group Cable & Wireless was boringly reassuring, containing no shocks for investors and stating that full-year expectations were on target; so buyers would be disappointed to see the stock sinking by 7.8 per cent, especially with a clutch of analysts, including those at Deutsche Bank, RBS and Cazenove, recommending that clients buy the stock.

Profit-taking was diagnosed, rather than anything more serious. "[The] stock has been strong and no reason in trading statement to fault – we are reassured on momentum and the low economy impact," say those at Deutsche, who reckon the shares will reach 225p.

On the face of things, it is indeed true that everything looks rosy for the group. It is winning new contracts and market share in both its Europe, Asia and US, and international, businesses and "consequently, we are confident that we are well-positioned going into 2009/10".

All good then, apart from for the 600 people the group confirmed would lose their jobs following a recent acquisition. "At the interim stage," say watchers at Killik Capital, "the dividend was increased by 13 per cent, and a similar hike at the time of the final results would leave the shares on a yield of 5.4 per cent. As a result, C&W shares represent a more attractive investment in the telecom sector than BT Group."

The experts do point out that Vodafone offers a better yield, but investors should still count Cable & Wireless as a good punt. Buy.

CSR

Our view: Avoid

Share price: 198p (+11.5p)

Management at CSR, the electronic chip and Bluetooth provider, announced yesterday that it is buying the US GPS group SiRF in a $136m (£92m) all-share deal. The takeover, says its chief executive, Joep van Beurden, will save $35m a year, add to the group's already strong cash position and increase an impressive intellectual property portfolio.

Investors will certainly hope so. The deal was disclosed at the same time as CSR's full-year results, which for owners of the stock do not make particularly pretty reading, with an operating profit of $150.1m in 2007 dropping to a loss of $8.5m last year. Fourth-quarter revenues of $140.1m were at the bottom end of the expected range.

Watchers at Killik Capital describe the deal with SiRF as "defensive one, with a ritzy premium being paid. That said, we acknowledge the enhanced financial position, earnings enhancement and speed of delivery of proposed cost savings."

Punters will be encouraged by the favourable impression given by the market yesterday, with the stock up 6.2 per cent, following on from a 12-month drop of 58 per cent.

The problem is the outlook, with the group saying that it sees "no short-term alleviation" to worsening economic pressures. Demand, the company says, will remain weak during 2009.

Analysts at Natixis reckon that clients should buy, adding that, "Despite CSR's bleak outlook and earnings, the SiRF transaction seems to us a strategically smart move." The watchers ascribe, however, a price target of just 200p, which was almost eclipsed yesterday.

The takeover of SiRF may bolster revenues and provide a temporary shot in the arm for investors, but that is not likely to be maintained for the rest of the year. With the company itself saying that 2009 trading will be tough, the share price is in for a rough ride. There are safer punts available for investors. Avoid.

Elan Corporation

Our view: Avoid

Share price: €6.25 (0.12c)

The 74 per cent drop in the Irish pharmaceutical group Elan's shares since the year high of €23.74 prompted the group to ask Citigroup to conduct to strategic review, which could lead to a minority investment.

Reviews from investors will not be wild considering the share price loss, especially when they hear rivals such as GlaxoSmithKline and AstraZeneca from across the Irish Sea say that the industry is defensive: GSK's shares are up 15 per cent in the last year, with AstraZeneca trading up 33 per cent.

Pharma investors could ordinarily expect an easier time of it in a recession, but although things are getting better for the sector, that is not true of Elan: watchers at Goodbody say that even a part sale of the company would do little for shareholders. "It is rumoured that Elan may sell up to 20 per cent in a share deal. At the current share price, this would raise about $750m which, debt overhang notwithstanding, would, we believe, represent poor value for existing shareholders, given that our valuation, including debt, is currently about $13.75." Avoid.

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