The Investment Column: Genus provides haven from financial sector fall-out

Berkeley Group Holdings; Ashmore
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The Independent Online

Our view: Buy

Share price: 768.5p (+6.5p)

Genus achieved almost the impossible in yesterday's markets: its shares were up on the day, rising 0.9 per cent, as the rest of the market suffered from the Lehman Brothers fallout.

The animal genetics group, which specialises in bovine fertilisation, is about as far away from the credit crunch as it is possible to get. Couple that with the fact that the once-famous EU food mountains have been replaced by shortages, and with the increases in demand for food from places like China, and it is easy to make a case for the group.

The figures are also impressive. Annual pre-tax profits soared by 40 per cent to £28m, with a plethora of analysts jumping on the "buy" bandwagon. Those at Panmure Gordon argue that "if we were to assume current exchange rates were to hold throughout fiscal 2009, we would be adding at least 10 per cent to our earnings forecasts. As such we return Genus to our Buy list with a 920p 12-month price target."

Genus is a solid, defensive group and even though the stock is not cheap, investors should see gains if they take the shares now.

Berkeley Group Holdings

Our view: Sell

Share price: 839p (-17.5p)

Recognising Berkeley as a housebuilder will strike out a good number of potential investors immediately. There are those however that, despite the toxic sector, would back Berkeley, which builds homes almost exclusively in London and the South-east of England. Despite the company announcing yesterday that sales were a chunky 50 per cent down on historic levels, it said that shareholders were four-square behind a plan to restructure a £3 a share scheme of arrangement, which will now be paid in a series of dividends and buybacks between now and 2014.

Analysts at Citigroup agree, opining that Berkeley is "best placed among its peers". They add: "We calculate our price target of 1,280p by using a mixture of expected cash returns (269p discounted) and likely multiples once the group has repaid this cash. We have used a 10 times normalised price earnings ratio, 6.5 per cent dividend yield and an 8 per cent free cashflow yield, broadly in line with historical average levels."

This is all fine and dandy, but why on earth buyers would want exposure to the sector, which has already suffered greatly despite several economists predicting that the worst is yet to come, is beyond some. A long-term bet, which could be a very long-term bet, is worthwhile, but investors that buy now would be brave. Sell.


Our view: Sell

Share price: 210p (-31p)

If further evidence were needed on the effect of the financial downturn on equities, Ashmore is an example in point. The asset manager, which operates in high growth emerging markets, announced stellar full-year numbers yesterday, only for the stock to sink by 12.9 cent.

The investors said that assets-under-management had risen by 19 per cent to $37.5bn, while pre-tax profits were up a remarkable 49 per cent to £196.2m. The finance director, Graeme Dell, is sanguine about the performance of the group's stock. It is about the long-term punt, he says, in emerging market local currency debt markets, which get 23 per cent of Ashmore's investments. Yes, these markets are illiquid, but with returns at between 15 and 20 per cent, investors prepared to bet for the long term are likely to be quids in.

Arguably, given the markets Ashmore invests in, the stock should be a buy, especially as analysts at Landsbanki say that "the shares are trading in line with the sub-sector average based on our calendarised 2009 estimates, commanding a price earnings ratio of 9.2 times".

Buying Ashmore shares will be a prudent move before long, and they will outperform the sector, but the stock is moving on more than the group's performance, and has further to fall before any recovery. Sell.