The Investment Column: Hogg Robinson's misery could give way to sunnier days

Hamworthy; Umeco
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The Independent Online

Our view: Buy

Share price: 44p (+2.75p)

Being a listed company has been a miserable experience for the travel group Hogg Robinson. The group, which was floated at 90p in October 2006, has underperformed the sector by about 50 per cent since then. The stock fell 20 per cent in March, when it issued a profits warning due to poor performance in its event management business.

The group yesterday announced full-year pre-tax profits of £25.2m to 31 March, up from £12.9m the year before. However, Hogg Robinson is expecting a tough time this year, with the group's clients, especially those in the financial services sector, cutting back on employee travel expenses.

There is some good news. The company confirmed its 4p dividend and has signed up new clients. Citigroup has the group as a buy because it thinks that as a special situations punt, Hogg Robinson is worth looking at. Their analysts point out that an investment group with strong links to privately-owned Dutch rival BCD has recently bought a 16 per cent stake in the company. BCD refused to comment.

The chief executive, David Radcliffe, says that the managed travel arm, which contributes 80 per cent of revenues, is negotiating cost savings with several clients, and that this is ensuring that customers maintain a degree of expenditure.

Experts at Cenkos say that investors should buy, because they have nothing to lose; "a [price earnings ratio] of just over 6.5 times and a dividend yield of almost 10 per cent should underpin the stock, with investors seemingly getting a free option on a takeout." The market was thinking something similar yesterday, with the stock up nearly 7 per cent.

Investors should be warned not to pin everything on Hogg Robinson, which since its listing has become something of a basket case. However, there is certainly an argument to suggest that things cannot get worse and any forthcoming bid can only be a good thing. Buy.

Hamworthy

Our view: Buy

Share price: 585p (+22.5)

By any measure, the marine engineering group Hamworthy has had a stellar time lately. Investors that bought the stock at the start of the year have enjoyed bumper returns as the global price of energy has led to much greater demand for the group's services, including deep water pumps, especially in the oil and gas sectors. Annual results announced yesterday showed a 26 per cent rise in operating profits. The forward order book was up 16 per cent.

The dilemma for new buyers is that the company's shares may have already appreciated as much as they are going to after trading up from 385p in January. Experts at Numis say that the stock is trading at a premium, albeit justified, to the rest of the engineering sector. They say that the share price should reach at least 630p, making a sound investment choice for punters.

However, interestingly, the group's own brokers at Collins Stewart are more circumspect, arguing that at worst the stock will reach 600p. The market clearly does not think that there is too much juice left in the shares, with the stock up just 4 per cent yesterday.

The only risks identified by the chief executive, Joe Oakley, are the time it takes to get projects off the ground and delays in the passing of environmental legislation, which the group also benefits from. It is probably worth adding to that the danger of currency movements; of the 26 per cent increase in profits last year, 8 percentage points were due to exchange rates.

There is little danger in buying Hamworthy shares, it is safe bet, but an appreciation to 600p in the next year might not be worthwhile for some. Buy.

Umeco

Our view: Buy

Share price: 569p (+3p)

Despite what you might hear about the aircraft industry, it is in rude health. Presently, there are 3,700 new planes on order across the globe, more than ever before.

This is great news for Umeco, a composite airline parts supplier, which posted impressive figures yesterday, with underlying pre-tax profits up 20 per cent.

In the past few months agreements have been signed with the likes of Airbus, to manufacture composite wings, and with Rolls Royce, neither of which had a major impact on the numbers announced yesterday.

Umeco no longer has an aircraft maintenance business, and is therefore not too concerned about the price of oil dampening air travel, and thus the need for aeroplane checks. Indeed, so long as the new aircraft order book stays as it is, Umeco should be laughing.

According to the company's own broker, UBS, the shares trade at 13 times the estimated 2009 price earnings ratio (PER) and at an enterprise value to Ebitda of 9 times. This, they say, does not reflect the value of the group's composites business (the biggest bit), whereas peers trade at 20 times their PER. The watchers at UBS say the stock should rise astronomically to 750p, something that the chief executive, Clive Snowdon, says is achievable. Those at Altium are a bit more reserved, saying that investors should expect the shares to reach 625p. Buy.

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