The Investment Column: Essentially is a winner despite investor worries

Essentially

Our view: Buy

Share price: 10.75p (unchanged)

Sports agents, particularly those representing the nation's footballers, do not always have the best reputations. Often they are accused of dodgy practices and bringing the beautiful game into disrepute. Essentially Group, a sports marketing and management company that has never itself been accused of anything untoward, works in areas such as cricket, rugby and Formula One. Yesterday, it said interim pre-tax profits were up 224 per cent.

While that is very impressive, the problem for buyers is that, while the group organises things like the advertising hoardings at England's home Test cricket matches, the stock has dropped by more than 30 per cent in the last 12 months as investors worry that the group's exposure to media spending is damaging. Some investors, particularly on the retail side, therefore decided to sell.

On the flip side, the good news is that the stock is undervalued. With earnings-per-share growth of 36 per cent and trading at six times earnings, investors should be interested. Last year, a bigger rival, Sportfive, was bought at a level of 21 times earnings. While chief executive Bret Campbell admits that Essentially is not really in that league, he reckons that around 12 times earnings is close to where the group should trade.

The analysts agree. Those at Edison argue that: "Essentially is currently trading on a prospective [price earnings ratio] of six times and an enterprise value to Ebitda of 5.8 times. The rating reflects investor concerns towards the media sector generally but, in our view, overlooks the above average growth potential of the business in attractive sports markets."

Some may avoid Essentially because of perceived media exposure, but those sticking should do well. Buy.

Kentz Corporation

Our view: Hold for now

Share price: 162.5p (-5p)

Some people might have said that the listing of a construction company, as Kentz did, in February was not the brightest thing to do as the shares of other building companies started to head into freefall.

However, investors will now regard the decision as being a rather prudent one. The shares are well ahead of their 115p listing price, and judging by yesterday's interim numbers, the group is going from strength to strength: pre-tax profits were up 52 per cent to $16.8m (£9.4m) on the same period last year. As construction companies that work mostly in the UK have seen their values falling by more than 90 per cent in some cases, Kentz's numbers yesterday show that the group is in fine fettle.

Ninety per cent of the group's work is done within the oil and gas sectors, with the group spending about 70 per cent of its time in the Middle East, where the credit crunch is yet to do its worst.

Chief executive Hugh O'Donnell says that things are still bright. The company has a backlog of $900m worth of deals to complete, and is working on a pipeline of $2bn of potential transactions, both up on last year.

Even though the relatively high price of oil has led to an increase in the number of new projects, which Kentz has benefited from, Mr O'Donnell argues that the recent fall in the price in oil is actually a good thing for his company. As the price of oil continues to fall, so the dollar appreciates, and as Kentz generates most of its earnings in dollars, so the company gets a revenue boost.

Analysts at Arden think, however, that Kentz's share price already reflects the good news: trading at 11.2 times 2009 earnings, they argue that the stock already trades on a par with the rest of the sector and that investors should add, rather than buy. Hold for now.

TEG

Our view: Hold for now

Share price: 50.5p (+0.5p)

Everyone would like to invest in ethical companies. However, big nasty defence companies and dirty miners, quite often, are the only ways to make money.

One alternative for environmentally-conscious buyers might be TEG, a group that converts organic waste into natural fertiliser, and which yesterday reported its interim numbers showing a pre-tax loss of £535,000 – an improvement on the £1.4m loss that was reported for the same period last year. More intriguingly, group revenues soared from a paltry £536,000 last year to £6.6m.

In anyone's book, TEG would be a risky punt, but for those who fancy a white-knuckle ride with their money, there are advantages: the group's technology lessens the need for landfill, and with landfill tax doubling by 2010, to £48 a ton, it has an advantage. It is also defensive in these times of woe, with local authorities as its major clients.

What is more, analysts at house broker Canaccord Adams reckon the stock is cheap: "We continue to value TEG using a three stage deferred cash flow, 10 per cent discount rate and a 10 times price earnings ratio for the terminal value. We are maintaining our price target of 168p and strongly reiterate our buy recommendation," they say.

Investing in any company of this size is risky, but TEG is making solid, if not remarkable progress. Investors might want to hold fire until full year numbers for further reassurance, but before long TEG should be a winner. Hold for now.