Investment Column: Standard Life's Nish is worth backing
Friday 11 March 2011
Our view: Buy
Share price: 226.9p (-17.8p)
Ouch. Standard Life suffered a rough session as its shares fell more than 7 per cent after it issued full-year results.
Stripping out various one-offs, yesterday's figures came in roughly in line with expectations, with operating profit rising to £425m from £399m a year earlier. There was therefore probably a touch of profit-taking after the shares rose 22 per cent from the end of November. But there was also some disappointment about cash generation, which on a headline basis slipped 6 per cent from a year earlier.
The Scottish insurer was unfortunate in following Prudential, which wowed the market on Wednesday with impressive cash generation that let it increase the dividend by 20 per cent.
But the Pru and Standard Life are at different stages. Prudential said its performance reaped the gains from work set in train three or four years before. By contrast, Standard Life's newish chief executive, David Nish, is only just over a year into his three-year plan to boost the former mutual's performance. The plan requires heavy investment in new technology to improve products and the speed of service, and drive more business through the systems.
Mr Nish points out that if you add back the investment spend, cash has grown in line with profit – an argument that is fine if you believe the investment spend will pay off.
It's easy to forget that Standard Life broke with 80 years of mutual ownership only in 2006. Mutuality has many strong points but innovation and drive are not high on the list.
Unlike his predecessor, Sandy Crombie, who joined the insurer from school, Mr Nish isn't a Standard Lifer, so to speak, and arrived in 2006 from ScottishPower. If he can add commercial drive to Standard Life's strengths – a trusted brand and big customer base – there is a real opportunity here.
Sales of long-term savings were healthy in 2010 even before Mr Nish's plan got to this year's execution stage. Next year is when the investment is meant to start paying off. Combined with a solid forecast dividend yield of about 5.5 per cent, Mr Nish's plan is worth backing.
Our view: Buy
Share price: 210.25p (-8.5p)
The roaring success of The King's Speech may not mark a golden age of UK film – as some high-profile commentators fear the business may have peaked with the closure of the UK Film Council – but it has certainly contributed to thriving tills at cinema box offices across the country.
The King's Speech has raked in more than £40m in the UK since its release in January, but none of this will be included in the Cineworld cinema operator's latest results, which cover the year to the end of December.
Even so, its box office receipts rose more than 4 per cent, making it the number one operator in the UK for the first time, with a market share of 26.2 per cent. This was a strong set of results for an industry hit by the World Cup over the summer and the poor weather during the winter, and Cineworld's revenues of £342.8m were marginally ahead of expectations. It benefited especially from the premium pricing for 3D screenings.
Following the period covered by the results, the box office is already a tenth higher than a year ago, with The King's Speech effect and the prospect of even more 3D movies. The stock is on an undemanding multiple of 10.2 times forward earnings, with a healthy yield of 4.8 per cent.
Our view: Buy
Share price: 1,088p (+14p)
Shares in Clarkson firmed up after the shipping broker posted better-than-expected full-year figures yesterday. The uptick came against the backdrop of a recovery in dry bulk volumes, with Clarkson reporting growth in market share across all its broking divisions.
Pre-tax profits rose by 44 per cent to £32.4m, while earnings per share were up nearly 40 per cent at 125.4p. One point of caution is the uncertainty regarding the global economic picture. Any major wobbles on the macro front could hit shipping. But Clarkson stands out, boasting a strong balance sheet, which should help to see it through any surprises in the months ahead.
The results, coupled with the balance sheet, would be enough to underpin a positive stance. The fact that the shares trade on multiples of less than 10 times forward earnings only cements the investment case.
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