The Investment Column: Mouchel is on right road despite missing M25 deal

Thomson Reuters; Trifast
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The Independent Online

Our view: Hold

Share price: 451p (+9.75p)

Investors are clearly looking for safer stocks in this period of economic misery, and they do not come much safer than Mouchel, the consulting and outsourcing group that spends much of its time chasing around after government contracts.

The problem is that there is not much to suggest that the shares are on the way up. The house broker, Cazenove, points out that the group trades at a "significant discount" to its main peers, Capita and Serco, which should attract buyers, but as Panmure Gordon argues, Capita and Serco are business process outsourcing peers; the group trades at a premium to its consultancy rivals.

The company issued a trading update yesterday saying that demand remains strong in its core markets, and that a fall in the value of the group's order book, now at £2.1bn, down from its half-year level of £2.3bn, is only due to the ebb and flow of bidding. Altium argues that the stock will not grow beyond 460p, and missing out on the multibillion pound M25 widening contract is a blow. The chief executive, Richard Cuthbert, says that there are plenty more fish in the sea.

Cazenove argues that "the group's defensiveness gives a lot of confidence to investors that it will continue to deliver growth and will perform in line with its forecasts." That is undoubtedly true, and investors looking for a safe investment need look no further than Mouchel. For those looking for a bit more than in effect sticking their cash under the mattress, there are more exciting options out there. Hold.

Thomson Reuters

Our view: Hold

Share price: 1517p (-49p)

The UK's media establishment was not too impressed when it was announced that Reuters, the doyen of British journalism for the best part of 150 years, was to merge with the Canadian group Thomson. Since the two joined in April, investors who were promised a fitter and leaner company have been disappointed by the performance of the stock, which is trading about 300p lower than Reuters was achieving in the days leading up to the amalgamation.

Investors are right to be waiting to see just how the combined company gets on. Chief executive Tom Glocer's soundbite is that the group will be one company in one year, and most of the analysts are encouraged by the company's potential, especially on cost savings. Those at Numis say the stock will reach 2040p in the next year, adding that recent first-quarter results were ahead of market consensus. The group announced yesterday that it was placing $1.75bn of bonds to repay some shorter-term debt.

Thomson Reuters trades at a slight discount to its peer group. According to Lehman Brothers, the UK shares trade on an estimated price earnings ratio of 14.2 times for 2009, falling to 11.9 times in 2010. Rival Reed Elsevier will be trading on 14.4 times in 2009 and 13.2 times by 2010.

Citigroup agrees, but is neutral on the stock price because of the company's exposure to investment banking. Indeed, while most people's perception of the group is linked to swashbuckling reporters in a far-off lands, in fact the vast majority of revenues come from the dissemination of business and financial data and news copy. While the group argues that its specialisation in areas such as commodities insulates it from the worst of the credit crunch, the global economic problems will have an effect on sales. A spokesperson says the fact that 60 per cent of profits come from Thomson Reuters Professional, which provides information to professionals not in financial services, is often overlooked.

The problem is that there does not seem to be anything that will provide the impetus needed to push the shares up to Numis' predicted range. Those at Citigroup prefer to "keep our powder dry", they say, adding that "until the outlook for the investment banks improves, the shares are unlikely to see absolute outperformance". Hold.

Trifast

Our view: Hold

Share price: 53.5p (-1p)

The chief executive, Steve Auld, reckons that manufacturing in the UK has been feeling the effects of the economic downturn for much longer than most companies. Indeed, long-term shareholders in Trifast, an industrial fasteners maker, would agree, especially after the group announced a profits warning last December. The shares are now trading at almost a year low.

The group announced its annual results yesterday showing adjusted pre-tax profits flat to last year and the dividend up to 2.8p from 2.4p.

The real tonic is that some watchers see the group as a takeover target. Those at Brewin Dolphin say that the year ahead could be challenging, but as the group looks cheap, trading at 7.3 times earnings, it could attract a suitor, which should push the stock up to around 70p.

Mr Auld says that Trifast's shares have toiled as investors have abandoned small-cap stocks in recent months. He says the future is bright as the company is strongly cash-generative and has low gearing. Investors should be more cautious: it would be unwise to punt on a group that would benefit from being bought out, but without a buyer, there is little to indicate a northerly push in the share price. Hold.

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