Investment Column: Sun is shining on Inmarsat once again
Tuesday 09 November 2010
Our view: Buy
Share price: 695p (+20p)
Inmarsat's shares hit an 11-month low last month after the US hedge fund Harbinger sold almost half of its 28per cent stake in the satellite communications group. And though the stock has strengthened by more than 12 per cent since, it is still below the levels seen in the summer.
Besides initial technical factors, the company has been weighed down by Harbinger ruling out a full offer for the business, which provides voice and data services to ships and aircraft, and satellite links to remote locations. Speculators, who have spent many a session floating the prospect of a deal, were doubtless heartbroken but this is still a stock to watch.
Yesterday's third-quarter results showed better than expected earnings as growth in aeronautical services, and an uptick in maritime services, boosted the bottom line. Maritime is Inmarsat's largest sector, and we were pleased to hear that the number of the group's terminals on ships was up by 5.8 per cent. Looking ahead, Inmarsat flagged up an expanded agreement with AP Moller-Maersk, the world's largest container shipping line, which should contribute to performance before the end of the year. Elsewhere, aeronautical sector revenues were up 38.1 per cent on the year. Business, in other words, is strong and, crucially for those thinking of buying in at this point, looks set to remain strong in the months ahead.
At 22 times forward earnings, the valuation has eased since the last time we looked at a company. Its growth potential merits a premium, so buy.
Our view: buy
Share price: 355.5p (-0.8p)
In August, we highlighted the Lloyd's of London underwriter Hiscox as one of the picks in a difficult sector. Yesterday's IMS trading statement did nothing to shake our confidence. In a field including several insurers with "issues", Hiscox is a quality play. Yesterday's statement was not heavy on detail, and what there was did not look terribly exciting. The company's premium income was flat at about £1.2bn, while the returns from investing those premiums were just 3.2 per cent. But drill down a bit deeper and you see the advantages Hiscox has over its rivals. It has cut back on underwriting in London's insurance markets (including Lloyd's), where too much capital is chasing too little business, depressing premiums as a result, and grown areas where it is possible to make money, such as its Bermudan business and the speciality UK operation that concentrates on the niche market of insuring the rich.
There is also always the chance of a capital return if things don't pick up. Trading on 115 per cent of the value of its existing policies, Hiscox isn't the cheapest, although it offers far better value than Royal & SunAlliance (on 130 per cent), which has made no secret of its desire to splurge shareholders' cash on deals.
At 4.7 per cent, however, the forecast yield is worth having and may grow. Hiscox is also a company with stable, high-quality managers who have a great track record. We are buyers.
Our view: Sell
Share price: 354p (+3.8p)
When we last looked at Bovis in May, we felt it could be worth a tentative punt. It was trading at an enormous discount to net asset value and showed signs of pulling itself together after a big loss in 2008 (a £4.8m annual profit for 2009 was at the top of forecasts).
The problem is that that discount has grown wider over the past six months because sentiment towards the housing market is so rotten. Yesterday's trading statement said Bovis expects to sell more homes in 2011 than this year. It has cash in the bank and land is relatively cheap.
The problem is that sentiment, which is worsening daily. The feared "double dip" in property is already well under way and the Financial Services Authority plans to stop millions of people from getting mortgages. It will get worse before it gets better. Sell for now, but look again in the new year.
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