The Investment Column: Many investors may have missed the ride on Stagecoach

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The Independent Online


Our view: Hold

Share price: 248.75p (+27.5p)

Shares in the bus and rail operator Stagecoach had a wonderful time yesterday, rocketing 12.4 per cent on the back of the group's trading statement, which said it expects to beat market expectations.

Existing investors have enjoyed a profitable few days, with shares climbing almost 50p since last Thursday. But those thinking of buying may now be a little late.

The group's brokers at Credit Suisse expect Stagecoach to post earnings per share of 20.1p for 2008, rising to 23.3p by 2010, and say that the company is set to be on a price-earnings ratio of 11 times for April. It is trading in line with its peers, they say.

Analysts at Merrill Lynch disagree, and have a hold on the stock, while suggesting that the group trades at a premium of 10 per cent to rivals. Those at Panmure Gordon, which already had EPS at 20p for this year, say that the group's stellar performance in recent years is priced into the share price, and that clients should hold the stock. Investec are more bearish and reckon investors should get rid.

Martin Griffiths, chief financial officer, says that some of the analysts will have to reassess their figures when the numbers are released in June, although he concedes that the group trades at a premium to the rest of the sector, albeit deserved. "The analysts are of course entitled to their opinions," he says. "The whole sector has traded down over the last few months, but with a number of groups putting out positive statements recently it seems like we're getting more attention."

One of the main concerns for Stagecoach is the seemingly unstoppable price of oil. Mr Griffiths says that the group has a good record in mitigating higher costs, but does say that, even with 95 per cent of fuel costs hedged in the UK for 2008, the group faces an additional £27m bill this year. If spot prices stay at today's level, fuel will cost the group another £27m in 2009.

Stagecoach has clearly emerged as a good company after struggling in the early part of the decade, but investors without money in the group already may have missed the ride. Hold.

Highland Gold

Our view: Hold for now

Share price: 195p (+6.75p)

As any Chelsea fan will tell you, Roman Abramovich has a history of making one or two changes when he buys into a company. Investors in Highland Gold, which produces 3 per cent of Russia's gold, will tell you the same thing.

The company was an also-ran until December last year when Mr Abramovich invested $200m, which helped to net profits in 2007 of $18.1m. In January, Mr Abramovich shelled out another $200m, taking his holding to 40 per cent.

Analysts reckon it is difficult to give an accurate valuation for the group. Much more relevant is the potential, and the biggest factor, argue those at Seymour Pierce, is Mr Abramovich's involvement, such is his "political clout". Nevertheless, watchers at Arbuthnot say that earnings per share "are above consensus and our estimates at 9.1c".

The risks to Highland are obvious. The group has benefited from the rise in the price of gold, which it does not hedge against. This policy proved profitable in 2007, but any fall will have the opposite effect if the tactic stays in place.

The other worry is political. A spokesman for the group says that it is exposed to state interference, just like any other foreign group in Russia, but that they should benefit from the tie-in with Mr Abramovich, who is a "friend of the government". The site that Highland's spokesman says is the great hope, at Mayskoye, is in Chukotka, where Mr Abramovich is governor.

Even with Mr Abramovich's money backing the group, conservative investors may consider Highland a bit of a punt; they do have only one operating mine at present. That said, the price of gold is showing no signs of weakening, and the fact that Mr Abramovich thinks it is a good idea might inspire others. Hold.


Our view: Buy

Share price: 42p (+4p)

Itis claims to be the traffic information market's most commercially successful firm. It provides real-time transport updates to the providers of navigation systems and local radio stations. Its share price soared 10.5 per cent yesterday after a brief statement that company would exceed to market expectations. The chief executive, Stuart Marks, conceded that only £50,000 of the company's shares actually moved.

Analysts like the group, with estimates of target share prices ranging from 50p to 81p, and while the company has a long way to go before it reaches those heights, watchers say the company looks attractive.

The company's brokers at Investec say that it is a good buy, but predict that the price/earnings ratio will fall from 10 times in 2008 to 8.4 times by 2010.

Mr Marks says that growth in the UK market will slow in the next few years but that investors can expect great things from the group's overseas operations, particularly in the US, where it has signed several licensing agreements. Buy.