Investment Column: There are stronger miners than Lonmin

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Lonmin

Our view: Avoid

Share price: 1740p (+148p)

Lonmin has been in the news a lot in recent months, but not for anything the group has actually done itself.

Xstrata, the Anglo-Swiss miner, has a 25 per cent stake in the company, having failed in a bid to buy the group last year. After last month's abortive attempt to net Anglo American, more than one market commentator has described Lonmin as "low hanging fruit" that may soon be back in Xstrata's sights.

For what it's worth, we reckon Xstrata may well fire another salvo in Anglo's direction before 2010 is out, although that will not dampen the surges in Lonmin's stock if Xstrata gets acquisitive again.

Away from the Xstrata situation, there is little reason to get excited about Lonmin. The group suffered as platinum prices fell last year, and even as demand for the metal has improved, the strength of the rand in South Africa, where Lonmin has its operations, has not helped. Its chief executive, Ian Farmer, concedes that there is little to suggest the rand will get any cheaper in the near future.

The company issued annual results yesterday, reporting a loss after disappointing output figures. Mr Farmer says that the longer-term prognosis is strong and investors should back the group on the expected hikes in platinum prices and the group's ability to operate efficiently and control costs. There is the added benefit of Lonmin's strong balance sheet, he adds.

Unfortunately, several of the analysts disagree. Those at Panmure Gordon argue that despite the group's results being "broadly in line with our forecasts with underlying loss before tax of $111m against our forecast loss of $115m ... [the] operating costs guidance for 2010 of cost increases 'below local inflation' disappoints, as does longer term production and capex guidance".

The group said yesterday that production would be up at 850,000 ounces by 2013. That seems like an awfully long time to us; while there will be developments from Lonmin in the meantime, we think there are more exciting miners out there. Avoid.



Robert Wiseman Dairies

Our view: Buy

Share price: 475p (-7.8p)

Delivering is what Robert Wiseman Dairies says it is all about – and it does not just mean the milk. The company has had a stellar half year, with earnings per share up a great big 86 per cent.

Now, the group will tell you it is all because of the wonderful efficiency measures it has introduced. In reality, the impressive numbers are largely down to the recent demise of rival Dairy Farmers of Britain and the extra demand it has seen as a result.

That is not to say that Robert Wiseman is not worth a punt. The company is performing impressively and with a new depot opened yesterday, there are likely to be more benefits to be had in terms of efficiency.

What is more, investors should not be put off by the fact that the group trades at a premium to the sector, say the analysts at Evolution: "Robert Wiseman trades on 12 times 200 PE, a premium to peer group. However the company has very low net debt and doesn't look expensive on 5.3 times 2010 enterprise value to Ebitda. [and, we have a target price of 480p]."

For those not convinced on the grounds that they are minded to buy an expensive stock, and we wouldn't blame them in normal circumstances, maybe they should also consider that Robert Wiseman yesterday increased the dividend to 5.75p from 5p last year.

We think Robert Wiseman is transforming into a well-run and healthy business: just the sort we would want to back. Buy.



Interserve

Our view: Buy

Share price: 238.4p (+2.7p)

Interserve, the services and maintenance group, yesterday said trading since the start of July had gone as expected.

The company's facilities management division is performing well, as is the project services and equipment services business in the Middle East. Specialist services, however, continue to face tough market conditions, while the private sector outsourcing market in the UK remains "very competitive". In other words, there were no ugly surprises – nothing to explain why Interserve's shares continue to trade out of step with the wider market.

Cutbacks in UK public spending pose a threat to project services, but this is offset by opportunities in the Middle East. And yet the stock has hardly moved this year. It went from around 400p at the beginning of September 2008 to last night closing at 238.4p. Compare this to the FTSE 250 index, which is up more than 40 per cent since the beginning of January.

The weakness has been overdone, in our view, particularly in light of the fact that while the yield stands at more than 7 per cent, the shares trade on a multiple of 5.5 times. We say buy.

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