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
PROMOTED VIDEO
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: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee