The Investment Column: Tough market means DS Smith is best ignored

A&J Mucklow; Blue Oar


Our view: Sell

Share price: 129.5p (-6p)

If the experts are right and Britain's economy will finally tip into recession by the end of the year, investors are going to find industrial groups increasingly tough to back.

DS Smith is a solid, no-frills, packaging maker that should be a fairly safe bet in turbulent times. However, as its customers suffer, so will DS Smith.

The group announced yesterday that its first-quarter expectations had been hit, with the numbers pretty much in line with this time last year.

It is what the group says it sees around the corner, however, that should have buyers running for the hills. The company is being hit by the double whammy of falling customer demand and rising costs, which will inevitably mean that the group will be unable to pass on its extra charges to its clients.

Not to worry, say analysts at UBS, who argue that, after trimming the group's target price to 170p from 175p, buyers should back the stock. "In our opinion, DSS is better positioned for a down cycle due to weak [sterling], product mix (plasterboard, corrugated), new low-cost capacity in the UK, and Spicers' [a division of the company] recovery. At target, DSS is valued at enterprise value to Ebitda of 5.3 times and price earnings ratio of 10.6 times [next year]."

That may be so and the shares may be inexpensive, but the next six months at least, and probably longer, will be tough for the company.

The market already recognises this, with the stock closing down 4.4 per cent yesterday. Investors will take heart from the fact that Goldman Sachs advised clients that a recent recovery in the stock – it has risen 22 per cent in the past month – was enough for them to take the group off its "sell" list.

In the longer term, investors might be grateful for buying the stock, but, if they do so now, there is likely to be some pain first. Sell.

A&J Mucklow

Our view: Sell

Share price: 250p (+6p)

The fortunes of every sector ebbs and flows with the economic cycle, and, despite struggling today, before too long property companies will be back in vogue.

But not yet, if the Midlands-based A&J Mucklow's full-year results are anything to judge by. Listed companies are usually banging down the door to talk about their numbers, even when they are a bit off. Management teams are invariably convinced by their own rhetoric and believe they can, in most cases, sugar even the bitterest pill.

Not so those at A&J Mucklow, who were trying to keep a low-profile yesterday. In fairness to them, it is not difficult to see why.

On just about ever measure, the group is having a rather torrid time. The headline figure is that the Reit has had to write down £41.2m of losses on its property portfolio, which contributed to an overall pre-tax loss of £26.7m, versus a surplus of £16.3m last year.

Bits of good news like a 12.1 per cent increase in rental charges and a 20 per cent rise in the dividend will soften the blow, but should not convince investors to part with their money.

Watchers at the house broker, Arden, yesterday said investors should buy the stock, arguing that "the shares are currently standing at a 35 per cent discount to the June 2008 net asset value and offer a yield of 7.2 per cent. We believe that this more than discounts the risks of further moves in the yield basis and, with the discount in line with its much more highly geared peer group, the shares are also very attractively valued against other Reits." That may be so, but the entire sector is still toxic. Sell.

Blue Oar

Our view: Sell

Share price: 10.5p (+1p)

Despite putting out a pretty miserable set of numbers yesterday, investors with shares in the investment bank and stockbroker Blue Oar finished the day pretty happy as the stock jumped by 10.5 per cent, largely because the group maintained its dividend and said that its cash position was healthy, at about 10p a share.

Investors, however, would be wrong to take that as a sign that the group is one worth backing. The company said that it had made a pre-tax loss of £1.6m in the six months to 30 June, after a profit of just shy of £1m in the same period last year. Worse still, fees and commission fell by 31 per cent to £6.7m.

Ah yes, but, says chief executive Andrew Monk, the company is undergoing a restructuring and will be a different animal in 2009: if the market suddenly improves, the group could be sitting very pretty, he argues. The break-up value of the group, Mr Monk suggests, exceeds the current share price, and, as a longer-term punt, Blue Oar is worth a bet.

As a financial services group, however, it is tricky to make an investment case for the firm, especially as they see the next six months as being "challenging," which has become managementese for tough.

The group is a tiny player in the financial services industry, and, if investors see that the likes of Lehman Brothers are about to announce yet more writedowns, they are hardly going to turn to Blue Oar as a safe haven. Sell.

News
people
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
film Ridley Scott reveals truth behind casting decisions of Exodus
News
people
Sport
footballArsenal 2 Borussia Dortmund 0: And they can still top the group
PROMOTED VIDEO
Arts and Entertainment
An unseen image of Kurt Cobain at home featured in the film 'Kurt Cobain: Montage of Heck'
filmThe singers widow and former bandmates have approved project
News
Andy Murray with his girlfriend of nine years, Kim Sears who he has got engaged to
peopleWimbledon champion announces engagement to girlfriend Kim Sears
Arts and Entertainment
Jake Quickenden and Edwina Currie are joining the I'm A Celebrity...Get Me Out Of Here! camp
tv
Arts and Entertainment
George Mpanga has been shortlisted for the Critics’ Choice prize
music
News
Albert Camus (left) and Jean-Paul Sartre fell out in 1952 and did not speak again before Camus’s death
people
Arts and Entertainment
Roisin, James and Sanjay in the boardroom
tvReview: This week's failing project manager had to go
News
ebooksNow available in paperback
News
Ed Miliband visiting the Holocaust museum in Jerusalem. The Labour leader has spoken more openly of his heritage recently
newsAttacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But are the barbs more sinister?
Arts and Entertainment
'Felfie' (2014) by Alison Jackson
photographyNew exhibition shows how female creatives are changing the way women are portrayed in advertising
News
i100
Life and Style
Fright night: the board game dates back to at least 1890
life
Environment
The vaquita is being killed by fishermen trying to catch the totoaba fish, which is prized in China
environmentJust 97 of the 'world's cutest' sea mammals remain
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Langley James : IT Support; Helpdesk, VMware; Manchester, £18k

£16000 - £18000 per annum: Langley James : IT Support; Helpdesk, VMware; Manch...

h2 Recruit Ltd: Business Development Manager - HRO - £70k+ ote

£35000 - £450000 per annum + £3k car, £70k ote: h2 Recruit Ltd: Do you want to...

Citifocus Ltd: Newly Qualified Accountants - Risk Mgmt

£Attractive Package: Citifocus Ltd: Prestigious financial institution seeks to...

Citifocus Ltd: Operational Risk Analyst

£Negotiable: Citifocus Ltd: Experienced operational risk professional with ban...

Day In a Page

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game
There's a Good Girl exhibition: How female creatives are changing the way women are portrayed in advertising

In pictures: There's a Good Girl exhibition

The new exhibition reveals how female creatives are changing the way women are portrayed in advertising
UK firm Biscuiteers is giving cookies a makeover - from advent calendars to doll's houses

UK firm Biscuiteers is giving cookies a makeover

It worked with cupcakes, doughnuts and macarons so no wonder someone decided to revamp the humble biscuit
Can SkySaga capture the Minecraft magic?

Can SkySaga capture the Minecraft magic?

It's no surprise that the building game born in Sweden in 2009 and now played by millions, has imitators keen to construct their own mega money-spinner
The King's School is way ahead of the pack when it comes to using the latest classroom technology

Staying connected: The King's School

The school in Cambridgeshire is ahead of the pack when it comes to using the latest classroom technology. Richard Garner discovers how teachers and pupils stay connected
Christmas 2014: 23 best women's perfumes

Festively fragrant: the best women's perfumes

Give a loved one a luxe fragrance this year or treat yourself to a sensual pick-me-up
Arsenal vs Borussia Dortmund: Alex Oxlade-Chamberlain celebrates century with trademark display of speed and intuition

Arsenal vs Borussia Dortmund

The Ox celebrates century with trademark display of speed and intuition
Billy Joe Saunders vs Chris Eubank Jnr: When two worlds collide

When two worlds collide

Traveller Billy Joe Saunders did not have a pampered public-school upbringing - unlike Saturday’s opponent Chris Eubank Jnr
Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

Our partner charities help veterans on the brink – and get them back on their feet
Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

Putin’s far-right ambition

Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

Escape to Moominland

What was the inspiration for Finland's most famous family?