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FRIDAYInvestors ChronicleAstraZeneca is further down the road towards updating its business model than is often assumed. They’ve shed more than 1,800 R&D jobs in the past two years. The extra savings that the move will generate – about $ 1.9billion by 2014 – will mean that the proportion of after-tax income spent on R&D will fall from 66 per cent to between 40 and 50 per cent. RBS estimates the shares are worth around 2,575p. Assuming AstraZeneca can move its R&D performance to something like the industry average RBS calculates value at nearer 3,068p. Buy.CSC owns some of the largest out-of-town shopping centres in the UK. In 2011’s first half net adjusted value (NAV) slid sideways from 390p to 391p. Occupancy dipped from 98 to 97 per cent between December and June. Most telling of all, the rent-roll stagnated over the period, ignoring the Trafford Centre in Manchester. Unless that changes in the second half, which seems unlikely, growth next year will be thin. This is crucial, because CSC can only increase its portfolio value by growing rental income. It’s simply not worth the risk. Sell.

Stack of newspapers

The Daily Telegraph
Construction group Kier has one of the most robust
balance sheets in the sector, a strong order book and it sees a pick-up
in outsourcing and private work coming next year. Full-year results
released yesterday were ahead of expectations, with pre-tax profits
rising to £72.5million from £57.7million, including one-offs. Kier said
yesterday that it has been named sole contractor to deliver a range of
construction projects throughout UK on behalf of Scape valued between
£750million and £1billion. The shares were first recommended at 889p on
March 11, 2009, and are now up 32 per cent. Buy.

After falling recently, this week’s interim
numbers sent shares in palm oil group MP Evans back up above the
original tip price. MP Evans remains on track to deliver substantial
increases in its Indonesian crop. The group also owns 34.37 per cent of
the North Australian Pastoral Company. Results from the group are
complicated because it is forced to account for the biological nature of
its business. After adjustments, net profits rose 86 per cent to $ 22.4
million. This year’s earnings multiple is just 12.4 and the shares are
yielding a prospective 1.1 per cent. The shares remain a buy.

The Times

Kier Group says it is seeing an increase in tender
opportunities across both the public and private sectors. Kier is in
line for a number of big public contracts, including £1.5billion of
housing maintenance, and £300million and £400million respectively from
local authorities. Full-year figures showed pre-tax profits, ahead of
one-offs, were up 24 per cent to £68.9million. The shares are supported
by a forward yield of 5.6 per cent. But even on a price-earnings
multiple of about eight, the shares do not seem to be going anywhere in a
hurry.

Investec wants to get away from straight bank
lending. The appeal of Evolution Securities is the £7billion of private
client wealth it has, which would bring Investec’s UK total to
£22billion. There was a net inflow in assets under management of an
impressive £2.6billion over the summer. The shares are on about ten
times’ this year’s earnings; some analysts believe the market is
undervaluing the wealth management side, but it may take the rest of the
market a while to come around to this point of view.

The Independent

Kier, the construction, house-building and
contracting firm, managed to come through the slump rather well.
Yesterday it revealed that pre-tax profits had climbed to nearly
£70million in the year to the end of June. They also showed off a
four-year framework worth up to £1billion from Scape. Offsetting this
were comments that it expected 'public sector work to drop under  50 per
cent over the next year'. The valuation – the stock trades on under 8
times forward earnings – is also supportive. These factors argue against
selling. Gloomy moods in the markets argue against buying at this
point. Hold.
Cobham, the aerospace and defence group, is an
innovative company working in a difficult market. In an inspirational
bout of innovation, Cobham recently developed a piece of equipment that
generates oxygen from the air. This enables army field hospitals to
operate without the need for a constant supply of fresh compressed
oxygen tanks. Overall, Cobham appears to be doing everything right and
its first-half results were encouraging. The trouble, however, is that
about 70 per cent of its sales come from military customers at a time
when many countries are significantly cutting budgets as part of severe
austerity programmes. Hold.
THURSDAY
Shares
MagazineInvestors should
buy dry cleaner-to-facilities manager Johnson Service at 30.6p as signs
of improvement in underlying trading are still not reflected by the
share price. The dividend is going up, debt is coming down and the
£77million cap has a plan to grow all parts of its business. Half-year
results last week show adjusted operating profit increased by 20 per
cent to £600,000 against a 2.3 per cent drop in revenue to £37.9million.
We expect slow but steady growth in Johnson Service. It is forecast to
pay a 0.93p dividend per share for 2011. Pre-tax profit is forecast to
grow by 5 per cent this year to £15.2million and nudge up by 7 per cent
to £16.2million in 2012. Buy.Healthcare software specialist
Craneware has the market positioning, strong cashflows and scope for
growth. Craneware supplies Changemaster software, an automated
financial planning and reporting platform. Since hospital culprits face
stiff fines for payment mis-management, there is compelling commercial
logic for a hospital to sign-off on a $ 500,000 investment in
Changemaster software. Since it came to AIM in 2007, Craneware has
hardly put a foot wrong, executing its strategy flawlessly on its way
to growing revenues, profits and earnings every year since. Latest
results for fiscal 30 June 2011, saw revenues rise 34 per cent to
£38.1million and is expected to hit $ 55 million this year to June 2012.
Buy. 
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 Daily Telegraph
Yesterday’s full-year numbers from
coal mine operator Hargreaves Services were excellent. Annual pre-tax
profits jumped 20 per cent – and analysts expect profits to rise almost
30 per cent in the current year. Hargreaves has an exemplary track
record of profit delivery – with earnings per share increasing by about
40 per cent a year since 2005. Revenues in the year to May rose 20.1
per cent to £552.3million and net debt fell by a quarter to £66million.
This is not an income share, it is a growth stock. The shares are up 81
per cent since their initial recommendation on February 22 2009 at
542.5p. Buy.
Barrett Developments is delivering
as expected and the investment case remains intact. Barratt is the
largest UK homebuilder by volume and it managed to post a pre-tax
profit before exceptions of £42.7million, against a loss of £33million
last year. Total completions were lower at 11,171, compared to 11,377.
However, the average selling price rose 7.4 per cent to £198,900, as
the company focused on the relatively buoyant London market and sold
more family homes than flats. The shares were recommended on January 2
this year at 88.65p and they are now down 13 per cent. Buy.

The Independent
Millennium & Copthorne hasn't
had the easiest of rides. Go back to August and the hotels group's
shares were changing hands at levels of over 500p apiece. Nowadays,
however, they are worth closer to 400p. A glance at the company's
interim management statement in early August doesn't go very far in
explaining the slump. The update showed that pre-tax profits in the
second quarter were up more than 90 per cent, while revenues per
available room - the key industry metric - were up 4.6 per cent.
Nonetheless, the share price fell. Although Millennium has much going
for it, another global downturn will hinder progress in the share
price. Hold.
Modern Water seems to have carved
out a potentially lucrative niche in an area that is only going to get
bigger. The AIM-listed desalination and water monitoring company, which
has commercialised the process of ‘manipulated osmosis technology’ has
just reported a 430-fold surge in revenues for the first half. Soaring
revenues of £430,000 notwithstanding, Modern Water still clocked up a
£2.1million loss for the period, but executive chairman Neill
Macdougall was in bullish form. And the market agreed with his
optimism, sending shares up by 7.8 per cent. With a gross profit margin
of 33 per cent and a debt-free balance sheet holding £16.7million of
cash, Modern Water looks to be in fine shape and well worth a punt. Buy.
The Times
A complex spread of plantations in
the Far East and Australian cattle ranches, MP Evans is trying to prune
itself into a less unruly state. Though quoted on AIM, it is probably
the most widely traded of the few remaining old plantation stocks. The
company reported strong first-half results, gross profits up 57 per
cent to $ 12.9million and halfway dividend raised from 2p to 2.25p,
which sent the shares ahead by 6 per cent to 420.75p. By 2015 it is
hoping to have a more streamlined business 70 per cent reliant on
Indonesian palm oil and 30 per cent on Australian beef.
Analysts have been anticipating an
investor conference from International Power since the interim figures
more than a month ago. But it is now six months or so since the complex
deal in which GDF Suez, of France, took a 70 per cent share.
International Power’s strategy is to build extra capacity in
high-growth markets such as Latin America, the Middle East and Asia.
The main news was that capital spending is being raised by €3billion to
€4billion (£3.5billion) a year. The company has sufficient financial
firepower to fund this, given the financial support from its much
bigger French shareholder. Worth hanging on for future growth.
WEDNESDAYDaily TelegraphGood
companies are becoming cheaper by the day and the trick is to get them
when they are cheap. One such company is Carillion, the construction
and outsourcing business. The main profit drivers going forward are
support services and its construction activity in the Middle East and
Canada. In the six months to June 30, revenues lost 2 per cent to
£2.5billion, with pre-tax profits down 35 per cent to £38.2million.
However, when one-off items such as reorganisation and financing costs
are removed, underlying pre-tax profits rose by 10 per cent to
£72.5million. The shares are trading on a December 2010 earnings
multiple of 7.5 times, falling to just 7 next year. Buy.Polo Resources is a risky play on
the mining sector – but one that allows investors to get in on
early-stage projects at an attractive price. The company has had an
exciting time recently, with the sale of its stake in Caledon Resources
netting it about £90 million. The AIM and Toronto-quoted company have a
good track record of delivering on its investments. At the end of last
year the group’s cash balance stood at $ 37.5million and it had a net
asset value per share of 6.56p. The shares were first recommended at
5.48p on February 20 this year. The shares remain a risky buy. The Independent
Tullow Oil, the FTSE 100 explorer,
is walking tall at the moment after striking oil off the coast of
French Guiana. Analysts hailed the South American find as a
game-changer’ while the markets sent its shares up by 15 per cent –
adding more than £1.4billion to its market capitalisation. With Brent
Crude trading at around $ 112 (£70) a barrel, at current prices Tullow’s
latest find could translate into between £112billion and £560billion
worth of oil. Oil is a precarious business at the best of times. But
with a market capitalisation of less than £13billion, Tullow looks
substantially undervalued. Buy.
You could argue that the US is not
the best country to invest in right now, but this this generalisation
glosses over both pockets of strength and the prospect of recovery over
a longer horizon. That is why National Express’s $ 200million deal to
buy Petermann Partners, the school bus operator, makes sense. Adding
Petermann bolsters the division and paves the way for further growth.
Despite boasting prospective yields of well over 4 per cent, National
Express shares trade on a forward earnings multiple of around eight
times. That said, the acquisition price looks full. Offsetting that,
however, it should be remembered that the deal is immediately
earning-enhancing. This, and the valuation, makes the case, although we
would advise caution given the near-term economic uncertainty. Buy.
The Times
Abcam is one of Britain’s less
well-known high-tech success stories. The company floated on AIM in
2005 with a market capitalisation of £57.5million and is now worth
£626million. It is buying Ascent Scientific, which makes other
biochemical products, for £10million in cash and shares. Revenues were
up by 17 per cent to £83.3million, pre-tax profits by 25 per cent to
£32.3million. Abcam pays out 40 per cent of post-tax profits to
investors because of its strong cash generation, though the yield is
still below 2 per cent. The shares have come back from 460p in July.
The shares, up 1p at 344.5p, sell on 24 times this year’s earnings.
Shares in IG Group look a simple
bet. For those of us who live in the real world, there seems little
prospect of the market turbulence that has boosted revenues so sharply
at IG coming to a halt. That is not to say the shares in the
derivatives trading group are screaming buy; they sell on more than 13
times’ earning. The company does well in turbulent markets because this
encourages its clients to take financial bets. IG sits in the middle
and takes a cut. Yesterday IG put out figures for its first quarter.
Revenue was up 26 per cent year-on-year to £100million. Growth was
driven by a 20 per cent rise in the number of clients and an 8 per cent
increase in revenue per client. Though the shares look toppy, an
interesting bet on further hard times.
TUESDAYThe Daily TelegraphHow
does a food manufacturing business have the ability to increase its
share price by 72 per cent in just over two weeks? Associated British
Foods has two reasons. Firstly, Primark is an unbelievably steady
performer and its full–year trading update saw it post like-for-like
gains of three per cent. Secondly, its sugar business is forecast to
reach operating profits of £295 million in the year just finished and
in 2012 it could power ahead to £330 million. The shares are trading on
a forward PE of 12.7, with a dividend yield of less than two per cent.
But they are a reliable performer, which in this environment is worth
paying for. Buy.London, and particularly the West End, where the majority of Great Portland Estates’ property is held, remains attractive. The company added to its development portfolio, announcing the acquisition of a 2.3-acre site in the West End for £120million. It has also finalised a £132.7million joint venture. The company trades on a dividend yield of around 2.3 per cent. Its share price is at an appreciable discount to the company’s last reported net asset value per share, 375p. The investment in Great Portland is in management, location and experience. The company ticks all three boxes. Buy.The IndependentThe last time we looked at WS Atkins, we decided to buy, reasoning that the engineering group’s sensible strategy of expanding augured well. Since then markets have suffered a well-documented slump and Atkins has not been spared. Offsetting this was the Middle-Eastern arm, where the workload ‘has increased’. One of the key points was the increase in the overall group headcount in the year as ‘growth in…[the company’s] Middle East and Energy businesses’ exceeded reductions. This diversity and international reach means that Atkins is better placed to deal with any downturns than many other companies. Buy.Hellenic Carriers’ operates a fleet of five vessels that transport dry bulk goods. The sector has come under severe pressure during the downturn and Hellenic’s first half numbers saw revenues fall from $ 30.6million in the first half of 2010 to $ 20.8million a year later. Net profits sank from $ 10million to $ 3.1million. Yet the management believes there are glimmers of hope, most importantly the growing demand from the East. With the low charter rates and the new capacity set to enter the market, it seems far too risky for us, however. Sell.The TimesThe completion of a joint venture with Daimler to buy the German engine maker Tognum for €3.2billion is of significance to Rolls-Royce. Rolls Royce has achieved a huge transformation, lessening its exposure to the civil aerospace market and has moved further into marine engines. Tognum makes high-speed diesel engines for sports yachts and fast patrol boats. Evolution Securities suggests the deal could add 10.5 per cent to earnings per share next year and 12.7 per cent in 2013. The company’s performance during the downturn has been impressive. It moved pre-tax profits from about £800million in 2007 to £955million last year.At the end of the month the Cluff Gold board will receive a feasibility study from its Baomahun mine in Sierra Leone. This could potentially produce 150,000 ounces a year, dwarfing the other two mines the company operates. But it will cost $ 200million or so to develop. Full production would allow the company to reach its target of producing 250,000 ounces by 2013. Much of the initial investment can be funded out of the group’s own cash. The performance of the two existing mines, however, indicates the risks of doing business in that part of the world. Earnings in the first half declined to $ 11.1million, from $ 18.4million last time. But the real story is Sierra Leone. Investors with an appetite for reasonable risk should stick with Cluff.