Investment Column: Too much bad news from uncertain Kesa

Stagecoach Group; Avocet Mining


Our view: Avoid

Share price: 109.5p (+6.75p)

The key highlight in Kesa Electricals' preliminary results yesterday, according to analysts at Investec, was that the company cut the dividend to 5p, "compared with consensus forecasts of 7.2p," which they said was a "sensible adjustment... given the outlook for earnings and cash generation."

Well, whoopee! If that was the highlight, the rest was predictably bad. The group, which owns the electrical goods store Comet and Darty in France, as well as a host of others in other European countries, said that profits were down from £141.3m last year to £77m this time around. Including exceptionals, the group slipped to a pre-tax loss of £81.1m and revenues, on a constant currency basis, were also down.

The most worrying aspect of the announcement was not the drop in profits, or even the dividend cut (although unlike Investec, we can hardly describe that as a highlight). No, the most worrying part was that the group sees no end in sight to the dreadful trading conditions it finds itself in. The stock was up 6.6 per cent yesterday, but with a falling dividend and profits, and not a green shoot in sight, we can think of few reasons to buy the shares.

Unlike us, some analysts were supportive. The experts at Numis reckon clients should buy: "Now trading on sub four times enterprise value to Ebitda and with well-positioned businesses in France, Holland, Belgium and the Czech Republic, we remain positive, particularly given the weak comps facing the business". Those at UBS say that the stock will reach 140p.

Of course, we could be wrong and investors may do very well from betting on Kesa – after all the stock is cheap at these levels, the group has got cash and thinks most of its losses are due to start-up costs relating to new businesses. However, we would argue that in these worrying times, punters should be looking for companies performing solidly and with a clear idea of what will happen in the next year. Buyers would get neither from buying Kesa. Avoid.

Stagecoach Group

Our view: Buy

Share price: 127.75p (+10p)

The Department of Transport is "either dysfunctional or deceitful," says Stagecoach, the bus and train operator. The spat concerns what Stagecoach says are its contractual rights to certain revenues under its franchise to run South West trains, and the Government's decision to settle the matter in the High Court, rather than opting for the quicker arbitration route.

Either way, the company is not getting what it expected under the franchise agreement to run the train company, and that should be a concern for investors.

Indeed, it is probably what has held back the stock. The shares have been pretty unimpressive in the last few months, against a very good operational performance, including a 12.6 per cent jump in full-year profits, announced yesterday. The profits are being driven by a buoyant bus division, which is more than making up for a train operation that without government-supported revenues is feeling the pressure of commuters losing their jobs.

On paper, Stagecoach is a great stock, and a positive outcome to its fight with the Government should send the shares soaring. In the meantime, a dividend increase will keep investors going. Buy.

Avocet Mining

Our view: Hold

Share price: 81p (+1p)

Investors could be forgiven for thinking that with gold prices at historic highs, a group that produces the stuff would be a sure-fire investment. Sadly for Avocet Mining, problems at its Malaysian operation have hit at just the wrong time. The group reported its preliminary results yesterday, saying that pre-tax profits were down 10 per cent on lower production, and with the grade of ore falling below what had previously been expected. The chief executive, Jonathan Henry, admits that shareholders remain frustrated and that the company has not lived up to its promises.

There is clearly a great deal of uncertainly about Avocet and investors should be cautious. The group says it is re-assessing the quality of the Malaysian operation and will update shareholders in September. It urges buyers not to forget that it has three good quality mines and that, unlike most Aim-listed gold explorers, Avocet is in production and is profitable.

The shares are cheap and should be doing better. They will get a kicker if the news in September is good, but so far, however, Avocet has largely been long on promises and short on delivery and we would wait for some sure-fire news before buying in. Hold.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Life and Style
Fans line up at the AVNs, straining to capture a photo of their favourite star
life Tim Walker asks how much longer it can flesh out an existence
Life and Style
Every minute of every day, Twitter is awash with anger as we seek to let these organisations know precisely what we think of them
techWhen it comes to vitriol, no one on attracts our ire more than big businesses offering bad service
News
Professor David Nutt wants to change the way gravely ill patients are treated in Britain
people Why does a former Government tsar believe that mind-altering drugs have a place on prescription?
News
Norway’s ‘The Nordland Line – Minute by Minute, Season by Season’ continues the trend of slow TV
television
Arts and Entertainment
art
Sport
Jonny Evans has pleaded not guilty to an FA charge for spitting at Papiss Cisse
football
Life and Style
Kate Moss will make a cameo appearance in David Walliams' The Boy in the Dress
fashion
News
The image released by the Salvation Army, using 'The Dress'
news
Sport
Liverpool defender Kolo Toure
football Defender could make history in the FA Cup, but African Cup of Nations win means he's already content
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Customer Relations Officer

£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Jemma Gent: Project Coordinator

£12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable