The Investment Column: Life is no holiday with MyTravel shares at this level

Tinopolis; Innovation Group

Our view: Avoid.

Share price: 193.25p (+4.75p)

Worries about terrorism and extra security measures at UK airports continue to take their toll on MyTravel. This summer the tour operator was forced to issue a profit warning after a foiled attempt to blow up a number of aircraft mid-flight led to sharp drop in bookings.

MyTravel yesterday complained that trading has not fully recovered since, and that if these conditions persist it will undermine the group's ability to meet its target of a 3.5 per cent operating margin in the UK. Figures from the company showed that UK winter bookings were down 9.5 per cent as it cut the number of holidays on offer by 10 per cent. Its Northern Europe bookings fell 5.5 per cent on an 8 per cent drop in capacity.

Nevertheless, MyTravel stuck to its forecast of a profit before tax of £40m to £45m this year - with its UK operations expected to deliver a loss of between £10m and £15m. Without doubt, the inconvenience of travelling by plane these days, because of extra security checks, and the threat of terrorist attacks against aircraft are having a negative impact on MyTravel.

Long-term, however, the growing numbers of people who favour piecing together their own flights and accommodation online is a much bigger threat to the group's business and the wider industry. This makes consolidation among tour operators inevitable - something that MyTravel's chief executive, Peter McHugh, confirmed yesterday. Exactly when all this corporate action will kick off is unclear - it could be years away. Meanwhile, trading at 24 times forward earnings, MyTravel shares look unappealing.

Tinopolis

Our view: Buy

Share price: 36.5p (+4.5p)

Tinopolis was little know outside its Welsh base until its launched an audacious bid for rival independent TV producer Television Corporation last year. TV Corp was one of the UK's biggest and most distinguished independent producers, but had under performed from a financial point of view for years. In the City, where money is everything, this did not go down very well. Therefore fund managers, including Schroders, welcomed the takeover of the group by Tinopolis, which although much smaller was profitable.

The Llannelli-based group was focused on making programmes for S4C, the Welsh language channel, and on educational content delivered via the internet. TV Corp was behind (and still is) much more high-profile programmes such as Question Time and Test match cricket.

Nevertheless, the combination of the two seems to be working well. Tinopolis has succeeded in taking around £1.5m of costs out of the TV Corp business and its turnaround is now well and truly under way.

Yesterday, came a bullish trading statement from the AIM-listed group. It boasted of strong market conditions and said it was optimistic about the future. Alongside it was news of a high profile hire. John Willis, a former head of programmes at Channel 4 and managing director of London Weekend Television, is to become creative director at the company.

Tinopolis certainly seems to have pulled off something of a coup by acquiring TV Corp. It is now perfectly placed to cash in on the trend which sees broadcasters buy an ever growing number of programmes from independent producers. This year it is expected to make a profit of £700,000, rising to £2.7m in the following year and to over £5m in 2008.

This is a stock to tuck away for the long term.

Innovation Group

Our view: Buy

Share price: 30.5p (+1p)

The Innovation Group has kept its head down over the past few years in order to rebuild credibility and transform its business model after suffering familiar post-tech boom malaise.

Heading into 2007, the business known as TIG now looks to be performing well and its management has become more aggressive, with a series of acquisitions that have put the company back on the map.

Analysts anticipate further deals in the key US market as TIG looks to position itself for opportunities in the insurance software and claims management outsourcing sector.

TIG entered the US earlier this year through the acquisition of SurePlan, which extended the insurance claims outsourcing model that it has employed in South Africa and Australia over recent years.

On top of its software, TIG provides outsourcing services to insurance customers that stretch to the company actually managing teams of auto mechanics who service company cars.

Alongside the purchases, TIG yesterday boosted investor confidence by winning a £2.9m contract with. The deal has greatly reduced any risk of TIG missing City forecasts this year. Trading at 11.5 times market forward earnings, the stock is cheap.