The Investment Column: Steer well clear of F&C Asset Management
Thursday 07 August 2008
F&C Asset Management
Our view: Sell
Share price: 103p (-1p)
TIMES ARE pretty tough for F&C Asset Management, the oldest investment firm in the UK. If having to tell the market yesterday that pre-tax profits in the last six months had dropped by 13 per cent was not bad enough, chief executive Alain Grisay then had to fend off questions from a bunch of pesky journalists who put it to him that there was little interest in the 52.5 per cent of the group that Friends Provident is trying to sell. "There have been a number of expressions of interest," insists Mr Grisay, who said that he expects a sale in the third or fourth quarter.
His job can hardly have been helped by another major investor, Dawnay Day, selling 19 per cent of the group last month, although in fairness Dawnay Day was a forced seller after facing collateral calls.
The numbers themselves, while not necessarily marvellous, were not too bad. Yes, profits dived and asset under management fell from £103.6bn at the end of last year to £96.5bn on 30 June, but earnings per share were flat compared with last year, which will at least give some cheer to investors. The fact that F&C has a higher proportion of insurance clients, which tend to be longer-term investors, compared with many of its peers does mean that funds are likely to stay at least stable.
What is providing considerably less cheer is the state of the wider market. Mr Grisay says that asset managers are a leveraged play on the stock market and when an upturn comes along, buyers should pile in. Indeed. Except that there is no sign of an imminent upturn, meaning that there is nothing to apply to halt the fall of the stock, which has already lost more than 45 per cent of its value in the last 12 months.
If you want an asset manager, the analysts would recommend F&C. According to those at Altium, the group will trade at 10.3 times its price-earnings ratio next year, compared with Aberdeen and Henderson, which are both closer to 12.5 times. However, you really do not want an asset manager. The sale by Friends Provident is also an irritation. Sell.
Eurasian Natural Resources Corp
Our view: Buy
Share price: 1,017p (+67p)
The perception over the last year is that investors in mining stocks have had a jolly old time: until recently, as the price of commodities has risen, so in theory have the portfolios of buyers.
That is not quite true of backers of the FTSE 100-listed Kazakh miner ENRC, which now trades down from year highs of 1,535p and had lost nearly 21 per cent of its value in the last three months before yesterday. The spike in the share price was largely due to speculation that the group would merge with the other London-listed Kazakh miner, and holder of 22 per cent of ENRC stock, Kazakhmys. The rumours have not yet gone away and an actual bid would spark a revival in the stock.
It is not just the lack of a substantive bid from Kazakhmys that has led to a slip in the stock. Metal prices have fallen considerably in recent weeks, based largely on fears of a fall in global demand. The group was up 7 per cent yesterday, however, on news that production volumes in the second quarter were up, with a 2.5 per cent rise for total ferroalloys, including a 3.8 per cent increase in high-carbon ferrochrome production.
The analysts reckon that the sell-off in ENRC shares is overdone. Those at Credit Suisse, which have the group on a target price of 1,600p, reckon the stock will outperform the market. "On our 'worst case' scenario ...assuming ferrochrome averages $1.80 per pound in 2009 compared with our current forecast of $2 per pound, ENRC could still achieve trough earnings of $2.10 per share for 2009, which implies a [price-earnings ratio] of just 9.4 times." Buy.
Our view: Hold
Share price: 237p (-4p)
Vimto, the cordial drink that is decidedly easier to get hold of in the north of the country – and oddly in the Middle East – than it is in London is 100 years old this year.
Its maker, Nichols, said that the immediate future will continue in much the same vein as the last six months. Yesterday, it announced that first-half pre-tax profits were up 15.5 per cent to £3.2m. John Nichols, the group's non-executive chairman, reckons that the credit crunch is having little impact on the group, which outsources its production of its drinks Vimto, Sunkiss and Panda. The other part of the business, its dispensary unit, is now becoming "an acceptable part of the portfolio", after several difficulties in recent years.
If investors are thinking that all this fairly mundane stuff means that Nichols is a good counter-cycle punt, sadly they are wrong. The group is growing, especially in the Middle East where Vimto is an increasingly popular drink during Ramadan, but even its own broker sees little room for growth. Watchers at Brewin Dolphin downgraded the stock to hold from buy yesterday, saying that it will only get to 260p in the next 12 months: but now would be a waste of time. Hold.
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