Investment Column: Xstrata's investment case remains strong

Tasty; Software Radio Technology
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The Independent Online

Our view: Buy

Share price: 1465.5p (-62p)

That Xstrata fell back last night was hardly a surprise. Goldman Sachs signalled caution on the recent rally in copper and other key commodities, sparking weakness in raw materials and equities alike.

Putting the fall aside for a moment, recent feedback from an analyst trip to Xstrata's operations and projects in Australia and New Caledonia was quite positive, with Macquarie, for instance, returning with a "sense that their development is on track and that Xstrata has the ability to deliver on its organic growth pipeline promise".

Canny investors will also note the recent flurry of activity around Glencore, the Swiss commodities trader which doubles up as Xstrata's single largest shareholder. In recent years, many a dull Friday on the stock market has been enlivened by rumours of Glencore looking to go the whole hog and attempting to merge with Xstrata. But the chatter never got very far, with traders highlighting the likely scepticism on the part of other Xstrata shareholders.

The scepticism, it was said, stemmed from the fact that Glencore was private, and thus hard to value. With Glencore widely expected to announce plans to float this week, the questions about valuation look set to be put to rest. That opens the door to a possible merger, though we should make clear that nothing has happened just yet.

The possibility is tantalising, however, and with the organic growth hopes makes Xstrata look like a good punt despite Goldman's caution on commodities. We would also highlight the valuation of eight times forward earnings, which leaves much scope for gains.

Tasty

Our view: Buy

Share price: 33.5p (+7p)

The restaurant group Tasty served up its maiden profit yesterday after bucking the slowdown in consumer spending. The AIM-listed company, which operates 14 restaurants under the DimT and Wildwood banner, cooked up a pre-tax profit of £244,000 for the 53 weeks to 2 January, following a loss of £2.08m the year before.

The group also boasted that since the year end it had delivered a "continued improvement in profits", which put flames under its shares yesterday. Tasty and its trading subsidiary, Took Us a Long Time, appear to have found a sweet spot in the market for DimT's affordable oriental food, including dim sum, and a growing army of followers for Wildwood's Mediterranean pizza and pasta.

Boosted by new stores, the company grew its revenues by a very healthy 15 per cent to £10.56m last year and has just signed up for its 15th site in Canary Wharf, the home of bankers in east London, with more in the pipeline.

And while it trades on a forward earnings multiple of more than 30 times after yesterday's jump, we think that over the long term, the stock will prove true to its name as an investment proposition.

Software Radio Technology

Our view: Buy

Share price: 39.12p (+0.25p)

Unless you pilot a three-ton tanker, it is unlikely that you know much about Software Radio Technology. The group makes kit that provides ships with an accurate tracking of their location on the high seas and of those vessels around them.

The good news for SRT, which has had its fair share of ups and downs, is that the technology is becoming increasingly popular among smaller craft, principally driven by regulation, hugely expanding the potential number of customers.

Last week, the group issued a full-year trading update ahead of market expectations and yesterday revealed it had won a second customer in China, a hugely promising market for the company. There is not a huge amount of competition, and given the forward earnings multiple of around nine times, this one looks set to sail higher.

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