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
News
peopleTop Gear presenter and all-round controversialist is at it again
Sport
Aaron Ramsey celebrates after opening the scoring in Arsenal's win over Hull `
sport
News
peopleActress speaks out against historic sexual assault claims, saying things have 'gone quite far now'

Arts & Entertainment
A stranger calls: Martin Freeman in ‘Fargo’
tvReview: New 10-part series brims with characters and stories

VIDEO
Life & Style
Guests enjoy food and cocktail parings by Chefs Jimmy Bannos, Jimmy Bannos Jr, Daniel Rose and Mindy Segal with mixologists Josh King and Alex Gara at Bounty & Barrel: A Jack Daniel's Single Barrel Dinner Series at Heaven on Seven on April 9, 2014 in Chicago, Illinois.
food + drinkSprinkle Palcohol 'on almost any dish' for 'an extra kick' firm says...
Arts & Entertainment
Shaun Evans as Endeavour interviews a prisoner as he tries to get to the bottom of a police cover up
tvReview: Second series comes to close with startling tale of police corruption and child abuse
Arts & Entertainment
Schwarzenegger winning Mr. Universe 1969
arts + entsCan you guess the celebrity from these British Pathe News clips?
News
politicsLabour launches the 'completely hollow' Easter Clegg
Sport
Luis Suarez celebrates after scoring in Liverpool's 3-2 win over Norwich
sport Another hurdle is out of the way for Brendan Rodgers' side
News
Portrait of Queen Elizabeth-II by David Bailey which has been released to mark her 88th birthday
peoplePortrait released to mark monarch's 88th birthday
Arts & Entertainment
The star of the sitcom ‘Miranda’ is hugely popular with mainstream audiences
TVMiranda Hart lined up for ‘Generation Game’ revival
Life & Style
The writer, Gerda Saunders, with her mother, who also suffered with dementia before her death
healthGerda Saunders on the most formidable effect of her dementia
Arts & Entertainment
Last, but by no means least, is Tommy Cooper and the fez. This style of hat became a permanent trademark of his act.
comedyNot Like That, Like This centres on alleged domestic abuse
Arts & Entertainment
Oxegen in Ireland has been axed as promoters decide it is 'no longer viable'
arts + ents Promoters have axed the event as it is 'no longer viable in current form'
News
The troubled star is set to give fans the biggest insight into her life away from the headlines
people Star made the announcement during the final episode of the programme, entitled Lindsay
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Database Team Lead ( Leadership, Sybase, Computer Science)

Negotiable: Harrington Starr: Database Team Lead ( Leadership, Sybase, Compute...

C#.NET Delphi SQL Developer (C#,DELPHI,SQL)

£40000 - £50000 per annum + Bonus+Benefits+Package: Harrington Starr: C#.NET D...

VB.NET SQL Junior-Mid Level Developer (VB.NET,SQL,Excellent com

£25000 - £35000 per annum + Bonus+Benefits+Package: Harrington Starr: VB.NET S...

Trade Support, Application Support, Operations Analyst, CRM MS

£45000 - £55000 per annum + Bonus and Benefits: Harrington Starr: Trade Suppor...

Day In a Page

Rubin ‘Hurricane’ Carter: The man who could have been champion of the world - and the Bob Dylan song that immortalised him

The man who could have been champion of the world

Rubin ‘Hurricane’ Carter and the Bob Dylan song that immortalised him
Didn’t she do well?

Didn’t she do well?

Miranda Hart lined up for ‘Generation Game’ revival
The Middle East we must confront in the future will be a Mafiastan ruled by money

The Middle East we must confront in the future will be a Mafiastan ruled by money

In Iraq, mafiosi already run almost the entire oil output of the south of the country
Before they were famous

Before they were famous

Can you guess the celebrity from these British Pathe News clips?
Martin Freeman’s casting in Fargo is genius

Martin Freeman’s casting in Fargo is a stroke of genius

Series is brimming with characters and stories all its own
How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players