The Investment Column: LogicaCMG holds out hope of light at the end of the tunnel

Northern Foods; JD Wetherspoon

Our View: Hold

Current price: 154.75p (+5.5p)

Is the worst over for Logica CMG? Yesterday saw another trading update to which investors could be forgiven for saying "here we go again" in response.

Yes, the company is going great guns in continental Europe, up 7 per cent in the Nordics, 8 per cent in the Netherlands, 10 per cent in Germany and 10 per cent in France.

But yet again the UK was a dog, with first-half revenues falling 9 per cent, leading to the numbers coming in at the low end of City forecasts. They had already been cut thanks to May's profits warning, which saw chief executive Martin Read announcing his early retirement.

Still, there are signs that the company might just be looking in better health come the end of the year.

Logica is promising better in the second half from the UK business, which ought to be able to start showing some revenue growth.

The company also provided a welcome surprise on the upside by announcing a markedly lower tax rate than expected. That is not in itself a reason for backing a misfiring business, but it certainly helped the shares.

Logica still has issues. It needs to shake up its cumbersome board and find a successor for Mr Read. But the addition of former GUS finance director David Tyler as non-executive deputy chairman should inject a degree of urgency into the search (he will take the lead).

When we said "buy" at 173.5p in January we felt the fall in the company's share price after disappointing results in January was overdone. Since then, Logica has been a big disappointment. But trading at 13.9 times this year's forecast earnings, falling to 12.5 times next year's, the shares are not overly expensive, and have a prospective yield of 3.3 per cent. Yesterday's statement suggested there is a touch of light at the end of the tunnel, so hold on.

Northern Foods

Our view: Hold

Current price: 117.25p (+ 0.5p)

It is a case of steady as she goes at Northern Foods.

The company, which supplies ready meals to Marks & Spencer and makes Goodfella's pizza, among other frozen foods, posted a 2.6 per cent increase in sales in the 13 weeks through to June yesterday. The news failed to excite the City, and shares were up just half a penny to 117.25p.

Perhaps unsurprisingly due to the awful weather in May and June, ready meals performed better than sandwiches and salads after barbecues were ditched in favour of nights in front of the telly.

Goodfella's pizza, which recently launched its Deeply Delicious deep pan pizza range to include a healthier pizza base and new toppings, did particularly good business. The company is also tapping into the growing consumer demand for all things good-for-you with its Naturally Fox's biscuits, launched in January, which include wholemeal Yorkshire shortbread as part of the offering.

The company yesterday warned that trading conditions remain challenging. Higher raw materials, energy and packaging costs are hitting food producers' profitability, while supermarkets continue to put the squeeze on suppliers to hold down prices.

Northern Foods parted company with its chief executive Pat O'Driscoll in February after she failed to turn the company round despite selling its most troublesome business. Management under the new boss, Stefan Barden, still have a fair way to go, but fortunes do appear to be improving. Trading at 15 times 2008 earnings, it is worth holding on.

JD Wetherspoon

Our view: Buy

Current price: 619p (+ 65p)

With all sorts of rumours swirling around about its performance, the pub group JD Wetherspoon surprised on the upside yesterday as the company shrugged off the poor summer weather and the early days of the smoking ban to prove that it was in better health than anyone expected.

There had been rumours of gloomy news in some quarters, but in the 11 weeks to 14 July sales were up by nearly 5 per cent, well ahead of the 2 per cent to 4 per cent that the company had expected.

So far, the company says it is too early to get a proper picture of the ban's impact. But food sales are soaring, and ultimately, the ban could even actually have the effect of making pubs more attractive places for all sorts of people.

Also, are smokers really going to stay away for ever? We think not.

Yesterday's share price rise looks to have been overdone, partly as a result of people who shorted the stock having to cover their positions. And now at 28 times expected full-year 2006/2007 earnings, falling to 20 times for the forthcoming financial year, the shares are not cheap. Still, at the start of the year we said take profits at 700p. It might now be worth buying back in, particularly if the shares show any signs of weakness over the next couple of days.