The Investment Column: Lively undertaking group Dignity is a good defensive play

UTV; Premier Oil
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The Independent Online

Our view: Buy

Share price: 735p (-13p)

The only certainties in life, so Benjamin Franklin's famous saying goes, are death and taxes and at least in part this is good news for Dignity.

The company, the only publicly listed group in the funeral sector, has a 12 per cent share of the market and is as fit as a financial fiddle, say analysts.

The advantage of owning Dignity stock is that its business is very predictable. The group operates localised undertakers that depend largely on good customer service and word of mouth, meaning that for investors worried about the economy, "the group is a very good defensive play. They are immune from economic problems and where they are established, they effectively have a local monopoly," says one analyst.

Indeed, the group's chief executive, Peter Hindley, points out that 1 per cent of the population will die this year, and that as long as the group does nothing to damage its reputation, that is good for business.

Analysts agree with this notion. One watcher at WH Ireland points out that the group grows by acquisition and is careful to buy firms with a strong local following, often leaving the existing branding in place. Last year Dignity bought 21 new businesses, which contributed to the firm's 8 per cent rise in annual pre-tax profits to £30.1m.

Investors are also likely to benefit from the company's habit of paying special dividends to shareholders. Analysts reckon that the next payout will come in 2009 or 2010 depending on how quickly the credit crisis eases, as these payments are funded by issuing loan notes that the firm then pays off over a number of years.

A number of analysts point out that recent increases in population are largely due to increased immigration and that these people tend to be younger and are thus less likely to die. Others counter this by pointing out that after several years of a declining death rate, the numbers dying are expected to rise from 2012. Buy.

UTV

Our view: Hold

Share price: 250.75p (+4.25p)

"It's a media company that is subject to cyclical markets and it's fallen out of favour with some investors," says an analyst at Numis of UTV, the Northern Irish media group that owns the Talksport radio station.

The company announced its annual results yesterday and despite the rather pessimistic analysis of the market, watchers of media companies are falling over themselves to be upbeat on UTV stock, which, they say is undervalued. Numis believes that the company should be looking to achieve a share price of 343p this year.

Like all broadcasters, UTV depends on advertising and the firm has a consistent track record of out- performing the market, say analysts. And while others bemoan the reluctance of advertisers to part with their cash, the company is well placed for the rest of 2008, they reckon.

The group, which posted a 5 per cent increase in profits, relies on its radio business for 56 per cent of its revenues and £14.5m of its total pre-tax profits of £17.7m; the company made a loss in 2006. TV advertising revenues dried up as the firm reported a decline of 1.7 per cent, but this is good, say analysts, compared to the rest of the market – ITV's TV takings were 4 per cent down in the same period.

It's not all good news for the group, which is saddled with £107.2m of debt. It would have to pay as much as £70m for Virgin Radio, a company that industry watchers reckon UTV would like, and the company agrees would be a good fit. Moreover, the media sector is notoriously volatile and if the economy does head south as some predict, all broadcasting companies are likely to suffer.

The group has benefited in recent years from a boom in the Irish economy, which now appears to be slowing down, and peace dividend in Northern Ireland – the rise in investment after the cessation of the Troubles – will slow in the future. Hold.

Premier Oil

Our view: Buy

Share price: 1343p (-67p)

Oil is booming and according to analysts at ABN Amro, the best performer in the exploration and production sector is Premier Oil. And investors should take heart that the best is yet to come from the group, which has had notable explorative success drilling in Vietnam and Indonesia.

The company has ambitious targets; it expects to be producing 80,000 barrels of oil by 2012, a realistic target analysts say after the group announced that it has 39 per cent in proved and probable reserves.

The company did reveal a non-cash loss due to hedging against the prospect of oil rising above the $100 per barrel mark, and that contributed to a fall in pre-tax profits to £147m last year, down from £156.6m the year before. But analysts and the company argue the group's finances are in good shape with the $1bn or so that it needs to pay for future projects already in place.

The group's explorative projects are now in the hands of their, "rock doctors," or geologists. If they come up with the right results investors in Premier Oil will be winners. Buy.

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