Investment Column: There could be more to come from Misys

Moss Bros; Rockhopper Exploration
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The Independent Online

Our view: Hold

Share price: 287.6p (-2.4p)

There have been dramatic changes at Misys this year, not least the sell-off of a controlling stake in healthcare group Allscripts and the decision to focus on business software. Yesterday the group gave an indication of how its new life is going in its first quarterly update since the £780m deal.

Misys now specialises in two areas of financial software and the first three months of its financial year showed a similar pattern to the previous months: The treasury and capital markets division continues to perform strongly with revenues up 4 per cent to £38m. More importantly, order intake was up 15 per cent as the flagship Summit trading system continued to attract customers. New contract wins include OSK Investment Bank in Malaysia and the finance arm of PetroChina.

But the group's banking software arm continues to look shaky. Revenues were down 5 per cent in the first quarter, but more worryingly order intake was down almost a fifth. Misys chief executive Mike Lawrie believes the division is progressing following the launch of a suite of new products.

Given the economic pressures on the banking industry, however, the banking software market remains tough, amply demonstrated by the way global services revenues fell 14 per cent year on year.

The good news for Misys' shareholders is that after the group pays down debt and advisory fees, the proceeds of the Allscripts deal will be returned to them. And those that have stuck with the stock since December 2008, when the shares had fallen to 84.7p, have also been rewarded.

Misys shares have undergone a renaissance, more than trebling to 286p. Analysts at Panmure Gordon say the they now look an expensive 20.3 times full-year earnings, but although the Allscripts cash brings this down to 10.2 times. There has been talk that if the new banking systems catch on, the shares could rise as high as 360p and seasonally this is the weakest quarter for Misys, so there could well be an upside. For that reason, keep hold of the shares.

Moss Bros

Our view: Hold

Share price: 23p (+1p)

Moss Bros, which hires and sells men's suits, delivered a mixed bag for the six months to 31 July. The group behind the eponymous Moss shops boasted a 11.6 per cent surge in like-for-like sales and a robust performance on gross margins, which only slipped by 0.5 per cent, despite the hike in VAT in January 2010. Encouragingly, Moss Bros said its underlying performance in the first eight weeks of the second half had continued to improve, as men dress to impress in the office.

On the downside, the uplift in sales did not feed through to the retailer's bottom line. Moss Bros's pre-tax losses widened by £300,000 to £3.3m over the half-year, which it attributed to changes including the temporary closure of two major stores for refits and severance and reorganisation costs.

There will be more of those as Moss Bros plans to axe jobs at its head office and distribution centre, which is moving from a seven-day to five-day week to trim costs, although it is thought the redundancies will be relatively modest. We tipped Moss Bros as a speculative buy at 22p in March, but have concerns that 2011 is likely to be more challenging for the high street. That said, Moss Bros has no debt and analysts tip it return to profitability in the year to January 2012. So hold on.

Rockhopper Exploration

Our view: Hold

Share price: 489p (+9p)

There will no doubt be a lot of back slapping at Rockhopper Exploration's annual meeting later today as shareholders hear how the group's stock has put on a remarkable 786.9 per cent in the last 6 months. Indeed, the venue had to be changed to accommodate all those that wanted to attend. The jump in the share price comes after the group, one of a number taking part in controversial exploration work off the coast of the Falklands, struck oil at its Sea Lion asset earlier this year. But when tomorrow's partying has died down, investors will need to decide whether the charge behind the stock has run out off steam.

A number of analysts say not, arguing that other prospective wells, most notably one called Rachel, will lead to more gains as new drilling takes place – after all, it is unlikely that the oil will be restricted to a single well.

But now may be an opportune time to take a pause – yes, the Sea Lion well would be worth more to a larger company, but Rockhopper is still a small cap and will attract a disproportionate number of naysayers as a result. We like the group, and would keeping holding for the moment. Hold.