Investment Column: Xstrata has issues to address but is cheap

Inchcape; Boomerang Plus


Our view: Buy

Share price: 1002p (-25p)

Compared to the announcements we have become accustomed to, yesterday's third-quarter production numbers from Xstrata were a tepid affair.

Last week the group walked away from its nil premium bid for rival Anglo American after Anglo persuaded its shareholders that the approach would not have saved enough money. So where does that leave Xstrata's shareholders?

The production numbers were a mixed bag: on the one hand, overall output was up thanks to a 9 per cent jump in coal production, while the group hailed its financial performance. "Xstrata's operating and financial performance continues to be strong, and the company's financial position remains robust," it said in a statement.

We also think that shorter-term dynamics in commodity prices will play into Xstrata's hands, with demand for coal and copper, which make up the majority of its portfolio, expected to surge. Indeed it has already started, with the company's share price rising by nearly 50 per cent in the last three months, although it is still way below the more than £25 level in May 2008.

Investors should question why Xstrata was so keen on Anglo, however. The target has a better mix of assets that will see it preferred by many investors later in the cycle when coal and copper prices are expected to drop. Punters may be concerned that copper output fell 10 per cent in the third quarter, while a strengthening South African rand is unhelpful for exports.

Having failed to net Anglo, at the least for the time being, Xstrata still needs to work out what it will do. Will it make another offer for Anglo? Will it relaunch last year's unsuccessful bid for Lonmin, in which it still owns 30 per cent? Or will it try something different? At this stage, nobody knows.

Trading on a 2010 price earnings ratio of 11.8 times, Xstrata comes at a discount to other miners, and this, along with current macroeconomic conditions, persuades us to be buyers. The group must address the longer term, however. Buy.

Inchcape

Our view: Avoid

Share price: 35.15p (+2.28p)

Inchcape is not the sort of company one might expect to benefit from Britain's cash for clunkers scheme, given its positioning towards the upper end of the market. But apparently some of those scrapping their bangers are using the cash to buy rather more upscale models than might have been expected. As a result, while third-quarter revenue was down 16.5 per cent assuming constant currencies, it was up 2.2 per cent on the second quarter. Those figures were rather better than analysts had been expecting, so yesterday's third-quarter trading update counts as a reverse profit warning (a profit warming?).

It's not just the UK, either: Australia and Hong Kong outperformed, and the group is benefiting from its global reach. Time to buy in?

Well, maybe. The UK market will slow next year when the scrappage scheme ends. Chief executive André Lacroix admits as much, although he says he expects continued growth from Hong Kong and Australia, together with a pick-up in Greece, which is planning a three-year scrappage scheme. The rest of Europe, though, is less happy, and visibility remains weak.

We last looked at Inchcape when we said sell at 258.75p, which now looks a very good call. After upgrading forecasts on the back of the trading statement, Cazenove now has Inchcape trading on 13.9 times next year's forecast earnings - down from 19. That's still not cheap enough for us (there's no dividend). We credit the company for outperforming, but prefer to remain on the sidelines for now Avoid.

Boomerang Plus

Our view: Buy

Share price: 80p (1.5p)

Boomerang Plus will be filming exclusively at this year's Freeze festival, which has Olympic-level ski and snowboard jumping and cutting-edge bands near Battersea Power Station.

The independent TV producer's share price has unfortunately followed the downward trajectory of the skiers, but there are reasons to think a jump could follow. Yesterday it bought Indus Films, a Welsh production company, to broaden its portfolio beyond extreme sport and kids to environmental, natural history and arts. It follows the buy of the snowboard magazine publisher Method and a £12m contract win with Welsh channel S4C.

Boomerang has no bank debt and constant revenue streams from S4C. The extreme sports programming is on Channel 4, and it is looking to take its contract win overseas. Its results later this week cover a bad period, so the shares could slip again. But like the extreme sports nuts, we're willing to take a leap into the unknown and buy.

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