The Investment Column: Bumper profits fail to excite SIG investors

Huntsworth; Monitise
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The Independent Online

Our view: Cautious hold

Share price: 486.5p (+16.5p)

Chris Davies has something of a problem. On the one hand, he is the chief executive of a very successful company, SIG, which yesterday reported a bumper set of numbers: adjusted pre-tax profits in the six months to 30 June were up an impressive 10.2 per cent, with revenues up just short of £400m.

However, SIG, which supplies roofing and insulation, has seen its shares almost give up in the past 12 months, falling by just over 60 per cent.

Mr Davies argues that two-thirds of the group's revenues come from supplying insulation to industries like petrochemicals and pharmaceuticals, and that 43 per cent of its business is done in mainland Europe, rather than in the toxic UK. The market does not seem to care: while the group does supply the UK market, it is overly tarnished by the association.

Mr Davies jokes that whatever is in the press seems to dictate what investors think of the group. If there is a plethora of environmental stories, as there was a couple of years ago, he says, so the market concentrates on the insulation part of the business. If, as now the media focuses on the worries in housebuilding, so the shares dip.

That said, the analysts think that investors should pile in. Those at Numis argue that "SIG has underperformed the FTSE All Share by some 3 per cent in the past month, leaving it on 6.5 times 2009 PE [price-earnings ratio] and a 7 per cent yield. Contrast that with Wolseley, up 20 per cent relative in the past one month on 10.5 times 2009 PE with a 2 per cent yield, and we believe there is an obvious switch emerging".

This is all very well, and, certainly on this evidence, the group looks good against others in the sector. The sector, however, is the problem, with investor sentiment clearly against all companies.

There is nothing wrong with SIG, indeed it is clearly a very well run group, but if the shares cannot improve significantly on yesterday's announcement, it is unlikely they will be boosted by anything else in the short term. Cautious hold.


Our view: Hold for now

Share price: 62.5p (+0.5p)

Public relations firms have a reputation for spinning and contorting the truth. Thankfully, that becomes trickier when numbers are involved.

Huntsworth, which runs communications businesses in the financial, healthcare and public affairs sectors, did not need to spin anything yesterday when it posted its interim results, showing pre-tax profits were up 21.9 per cent to £12.2m. However, despite the obvious good news, the shares finished the day almost flat, suggesting while there could have been a degree of profit-taking, investors consider the stock to be fully valued.

That would come as a surprise to watchers at Landsbanki, who argue that, regardless of the shares surging by nearly 17 per cent in the past month, they are still attractive. "The shares have strengthened by 13 per cent over the past 10 days but, with Huntsworth trading on 2008/2009 PEs of 7.3 times/6.9 times and EV/Ebitda [enterprise value-underlying earnings ratio] of 5 times/4.3 times, the valuation remains attractive," they say.

Its chief executive, Peter Chadlington, points out that the dividend is up 8 per cent, and that 63 per cent of target revenues for 2009 are already in the bag. He also suggests that, as companies run into trouble, so the need to "explain" has never been greater. That is probably fair, and, with Huntsworth's preference for signing up clients on a retainer, the model is defensive.

Huntsworth would be a nailed-on buy if it were not for the fact that the shares did not react well to yesterday's numbers. Cautious investors may think they have missed the boat. Hold for now.


Our view: Buy

Share price: 11.5p (unch)

For those of us who skirt close to going overdrawn each month, we might welcome an automated text message from the bank telling us we are about to run out of cash. Of course, we also might not.

Monitise is a company that provides the infrastructure to allow the banks to provide the service, and now has the likes of NatWest and Lloyds TSB on board. Its chief executive, Alastair Lukies, reckons the company was a believer in the platform long before most others, and that, despite a widening annual pre-tax loss, the group is set for great things.

Well, he would say that. Mr Lukies puts the loss – £14m, compared to a deficit of £8.7m last year – down to the group's investment in its platforms, which includes a payment system in the US. All things remaining equal, the group will break even in 2010, he says. Investors should take comfort that the turnover was up to £1.5bn, from £472m in 2007.

Watchers at the group's broker, Investec, say expanding use of the group's technology underpins its "buy" stance, and, while buyers might prefer something a little more solid, the group is still in its development stage.

There is clearly an appetite for Monitise's products, which is likely to grow. Furthermore, the group has no debt and a growing revenue, which could lead to a market price-busting bid. Buy.