Investment Column: Top billing for Cineworld's strong shares

Persimmon; ProStrakan Group


Our view: Buy

Share price: 164p (+0.5p)

The idea that cinemas boom during a downturn was proved right in 2009, with the annual box office gross takings in the UK breaking through £1bn for the first time. This has had Britain's largest cinema chains rubbing their hands together in glee, with the only listed group, Cineworld Group, publishing a bullish update yesterday.

Revenues last year were up almost a tenth, with the box office take soaring 14.6 per cent, and the profits expected to be in line with market expectations. This was driven by what the group called a "strong release schedule" and it picked out Slumdog Millionaire, The Twilight Saga: New Moon and Transformers: Revenge of the Fallen among the highlights. It added that the rise in interest from film fans for 3D, with Ice Age III the second highest grossing movie of the year, and also Avatar, had an additional favourable effect on admissions.

Cineworld's retail operation, which includes selling movie fans an array of crisps, fizzy drinks and ice cream, rose 7.6 per cent. The group said it more than made up for the decline in advertising revenue which made up the lion's share of the 28.7 per cent decline in "other income".

The stock is cash generative and the group believes the line-up for Hollywood in 2010 – crucial for the cinemas' cash registers to keep ringing – is strong. It includes the latest Harry Potter, Shrek 4 and Toy Story 3.

Analysts pointed out that the significant Blackstone stake was an overhang and other issues for the stock include the strong comparatives this year and people staying in on Saturday nights to watch shows like X Factor and Strictly Come Dancing. Cineworld said it hadn't seen these shows affect performance so far.

At a full year price to earnings ratio of 10.5 times the stock looks cheap and a yield of 6 per cent is an extra bonus. Cineworld looks worth a punt. Buy.

Persimmon

Our view: Hold

Share price: 500p (+31p)

Persimmon boosted sentiment across the house building sector yesterday. In a trading update ahead of its preliminary results in March, the group said forward sales into 2010 were up 40 per cent. The news on borrowings was also positive, with Persimmon saying that it had reduced debts from £1.2bn in April 2008, to around £270m at the end of December 2009.

That's the good news. The not so happy tidings are that while Persimmon is performing, mortgage availability remains constrained and the wider economy, though seemingly on the path to recovery, is fragile. Persimmon acknowledged the headwinds, but said it remains confident about the long term future of the housing market.

We agree – this country needs more houses, and Persimmon will play a part in building them. For now though, it is faced with an uncertain market, which, if it dips again, could wreak havoc on housing sector share prices.

The bulls will no doubt point to the momentum in house prices. The latest figures from the Halifax, for instance, showed an annual rise of 1.1 per cent in December, the first annual rise since early 2008.

As for the wider economy, GDP is widely expected to turn positive when the next set of quarterly figures is released later this month. Once again, we agree – there are clear signs of a recovery and we'd buy into any weakness in the stock. But given risks to the recent momentum in house prices – beyond the paucity of mortgages, we'd point out that they remain at historically record levels – and that economists continue to worry about the possibility of a double dip later in the year, we would say, hold for now. Hold.

ProStrakan Group

Our view: Buy

Share price: 101p (+16p)

ProStrakan is a company on the up. The speciality pharmaceuticals group, which published its full year trading statement yesterday, says that after reporting annual revenue growth of 40 per cent, 2010 will be the company's first year of profitability.

One thing that hasn't been on the up of late (until yesterday) is ProStrakan's share price, which has fallen by close to a third in the past three months. Chief executive Wilson Totten blamed the falls on analysts giving too much weight to the disappointing performance of Sancuso, a treatment used to guard against the nasty affects of chemotherapy, in the US.

Mr Totten pointed to yesterday's rise of 18.8 per cent as evidence that there is a bigger picture. With the group expecting to have three new drugs approved in the US this year, and the overt confidence on profitability this year, we would have to agree.

Furthermore, the recent falls mean the share now trade on an undemanding 2.4 times forecast sales, a discount to the wider market. We reckon the current level represents a good opportunity to get into ProStrakan. Buy.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future