The Investment Column: Experian is a business worth checking out

Dawson holdings; Photo-Me International

Our view: Hold

Share price: 389.75p (+28.5p)

A good part of Experian's business comes from checking the creditworthiness of mortgage applicants. Given the state of the UK housing market, and the general unwillingness of the banks to lend, investors could be forgiven for expecting a "sell" recommendation.

Well, they are not going to find one here. The credit-checking group, which was spun out of GUS last year, reported yesterday organic growth was up 1 per cent in the first quarter: actual growth was up 21 per cent, although the lion's share of that was due to Latin American acquisitions.

Paul Brooks, the group's finance director, says the diversification is the key and that while Experian is seeing less mortgage approval work, personal credit checking as well as overseas operations are going through the roof. Mr Brooks concedes the financial markets are bad, but he says that for now, as far as mortgages are concerned, the market is "bumping along the bottom".

Collectively, the analysts have not got a clue. Those at house broker Merrill Lynch say trading at 11 times earnings gives "an unwarranted 20 per cent discount to [its peer] Equifax". Before investors rush out and buy, however, the other house broker UBS says actually, at 10 times estimated 2009 earnings, Experian is in line with where Equifax trades. To muddy the waters further, those at Seymour Pierce say the shares look overvalued. Mr Brooks dismisses Seymour Pierce as uninformed, saying its watchers do not attend meetings.

Even so, the stock is down from a year high of 631p, and with the general financial situation looking pretty bleak it is difficult to see how the shares can bounce back to those levels. Even if they were the FTSE 100's biggest risers yesterday. Hold.

Dawson Holdings

Our view: Hold

Share price: 67p (+2p)

A casual reader of the media pages will realise the industry is not going through a financial golden era. Groups such as Trinity Mirror and Johnston Press, the publisher of The Scotsman, have had their difficulties – largely due to advertising revenues falling through the floor – well documented.

As such, you might expect that Dawson Holdings, the newspaper distributor, is having a rough time of it. However, the evidence in yesterday's management statement suggests that that is not really the case.

The group says progress is in line with expectations. Yes, the economic climate is precarious and the financial press is full of "agonising stuff", says the group finance director, Hugh Cawley, but he adds that Dawson is weathering things as well as possible. The group does face a hike in fuel prices, but as it contracts out 50 per cent of the distribution it is able to offset some of these costs.

All this is good news, but things are not that great, especially for shareholders. The stock is down from year highs of 118.5p and, while the group says it is in good shape, the analysts are not convinced investors will see a lot of upside in the stock. Arbuthnot says the group trades at six times earnings and, while that looks cheap on a historic basis, it is "probably reflecting near-term cyclical and structural concerns regarding UK media and publishing". House brokers Altium and Dresdner point out the shares are inexpensive given a yield of about 11 per cent, saying respectively that the stock will reach 111p and 128p.

These targets look a bit ambitious given that the group operates in a sector that is feeling the pinch. The group is also losing £70m of business from News International from next year, although Mr Cawley insists an extension would have done nothing for margins. Investors should take confidence from the group's performance, but should remain wary. Hold.

Photo-Me International

Our view: Sell

Share price: 11.75p (-0.75p)

Ouch! It is always nice to have something good to say about a company's results, even if it is a tiny morsel. When it comes to Photo-Me International, the photograph booth operator, it is a bit tricky.

Investors who have held the stock for the past year (there cannot be many) have seen it fall by about 85 per cent. Yesterday was no better when Photo-Me shares dropped another 6 per cent as the group announced an adjusted pre-tax loss of £1.9m compared with a profit of £13.9m in 2007. In fact, losses actually stood at £21.6m after a number of exceptional items, including £4.3m spent by the previous board on a review aimed at selling off the group's vending machines, a wheeze subsequently scrapped by the new chairman and chief executive.

Photo-Me has been a basket case in the past 12 months and any independent investor who has held the stock for the period should be sectioned. Thierry Barel, the new chief executive, insists he is the man to turn the group around. He is undertaking an operational review (yes, another review, but thankfully one that is not to going cost anything) that will look at cost savings at the group. Sadly, this is going to take some time to implement.

Hopefully, things are about to change at Photo-Me. However, new buyers need an awful lot more reassurance the group has been turned around. Sell.