Investment Column: TUI Travel can weather the storm – it's still a buy

Imagination Technologies; Norseman Gold
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Our view: Buy

Share price: 225.9p (+9.1p)

Just when it looked like the cold winds of recession had finally given way to spring sunshine and hopes of summer holidays, along came sovereign debt crises in Europe, unexpected good weather at home and a volcanic eruption in Iceland. Is it any wonder that so many would-be holidaymakers decided to stay put this year?

The timing could not have been worse. The mayhem induced by the ash cloud put enough people off their trips to send some lower-end companies – most recently Kiss Flights – to the wall. Behemoths such as TUI Travel, owner of Thomson and First Choice, were better protected, but the group was still forced to issue a profits warning in August, which took a chunk out of the share price, despite rumours of a takeover bid from a major shareholder. What looked like a good bet at more than 250p earlier in the year is now languishing at less than 230p, even after early gains put the stock as the FTSE 100's fastest riser first thing yesterday.

The story behind the sudden leap in price was an update that reported encouraging trading in the late summer season, a healthy outlook for the winter programme and even a good start in sales for next summer. It was not untrammelled good news. Peter Long, the TUI chief executive, said his outlook for the coming year remained "prudent" and stressed a continued focus on cost-cutting to protect margins. But the outlook for the share price is improving. And holidaymakers, even in the depths of recession, have generally proved unwilling to sacrifice the sunshine entirely. Even in a tricky climate, TUI looks cheap. Buy.

Imagination Technologies

Our view: Tentative buy

Share price: 384.7p (+4.7p)

Consumers cannot get enough of smartphones – the iPhone, HTC, and Samsung to name a few have been flying off the shelves – while the emergence of tablet computers, led by the iPad, has also proved a hit. A good place for any technology company to be, it seems, is inside these devices. Imagination Technologies is one such company which, along with its UK rival ARM Holdings, designs chips for use in them. Imagination specialises in graphics, video and display processors. Yesterday, it signed a useful little deal with the semiconductor group NetLogic Microsystems, which will use Imagination's kit in future products and will therefore produce licence fees and royalty revenues.

In an interim management statement earlier this month, Imagination said interest in its products was growing, both from existing and new partners. Especially interesting is its growth in emerging markets and plans to enter new areas such as televisions, set-top boxes, satnavs, tablets and netbooks. Licensing revenue should progress along with royalty revenue, with the number of shipped devices containing its technology hitting 200 million in the 12 months to April 2011.

Licensing revenues, however, tend to be "lumpy" and hard to predict. The economy is also a worry and, at 37 times forecast 2011 earnings, it looks pricey. But analysts think the number of devices with its technology could double in four years. That's some growth so, tentatively, we are buyers.

Norseman Gold

Our view: Buy

Share price: 52p (+0.25p)

Norseman Gold raised £11.3m through a private placing yesterday. The move was well received: the offer was substantially oversubscribed. The money will go towards developing a fourth mine at the Norseman Gold Project in the eastern goldfields of Western Australia. The North Royal Open Pit mine will help the company to achieve a medium-term production target of 140,000 ounces of gold. With strong finances and development plans on track, Norseman looks well.

That's the business side of the story. What about the gold price? It has done well of late, hitting records as traders seek hedges against inflation and sluggish economic growth. While Norseman could be prone to some profit-taking, for the medium term, with central bankers gearing up to pump fresh stimuli into the world economy, we think gold prices will stay high for a while, and that should underpin sentiment around Norseman, so buy.

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