LONDON (SHARECAST) - Cash-and-carry business Booker managed to surprise the market with its interim figures yesterday, and analysts were left upgrading their forecasts for the full year, says the Tempus column in the Times. Halfway profit before tax was 22 per cent ahead at £45 million in the 24 weeks to September 9. The halfway dividend is raised by the same rate, to 0.33p. But the company’s huge cash generation has turned £400 million of debt in 2005 into cash balances of £60 million, and its low level of spending on existing assets and acquisitions means this sum can only increase as the year progresses; even if dividends continue to be raised at this rate, this will not have much impact on the cash pile. Some sort of enhanced dividend looks possible; for now, the market appreciates the strength of the business, and the shares sell on about 18 times earnings for this year, which makes them no more than a hold, the Times says.
Hargreaves Lansdown has proved itself to be an impressive business down the years but it is fair to say that the investment manager now faces some powerful headwinds, according to the Investment Column in the Independent. First it should be said that the trading update last night was very much what we have come to expect from the business. Despite the all-pervasive gloom surrounding the economy – and the stock market – Hargreaves still took in £680m of client funds for the three months ending 30 September. That is a 24 per cent increase on the first quarter of 2010. Meanwhile revenues were up 27 per cent to £57.2m while client numbers rose by 8,000 to 388,000. The trouble, as the company has noted, is that current conditions mean that clients have started to put off making investment decisions. We said take profits in February at 570p, which was the right move. With the shares trading on 24 times full-year forecast earnings (albeit with a decent prospective yield of 3.5 per cent rising to 4.6 per cent) now is not the time to jump back in. Avoid, suggests the paper.
Here is a question: would you rather have 100 per cent of nothing or 12 per cent of something? This is the choice before shareholders in Dominion Petroleum, the subject of an agreed £118.2 million offer from Ophir Energy, which floated three months ago, notes the Tempus column in the Times. Dominion’s shares are stuck at 3.6p, the company tried a placing in the summer that failed for technical reasons, and it needs to repay $41 million of loan notes in a year’s time. There is no money to develop its gas assets off East Africa, and it is in danger of defaulting on its loans. Ophir’s offer gives them new shares in that company to a value of 5.9p for every share in Dominion, and 12 per cent of the merged group. It is not a difficult choice, even if the company is going out in a fire sale. The attraction to Ophir is that it gets its hands on three blocks, one close to its existing activities off Tanzania, which can be relatively easily developed, and two off Kenya. The deal looks a good one for both sides, the paper says.
We decided to back WH Smith at the start of this year despite news of falling sales and concerns about the pressure on consumers, says the Investment Column in the Independent. One of the main reasons was its focus on margins, which suggested that profits and the dividend would be protected from the downturn. And last night we had proof in the shape of the retailer's full-year figures. Profits before tax were up as gross margins rose by 150 basis points year on year. Sales were pressured but that is to be expected. But the company's focus on preserving margins and driving cost savings means that WH Smith continues to look in far better shape than some of its peers on the high street. We bought in at just over 480p. Though its done well since, at around 10 times forward earnings, with a prospective yield of more than 4 per cent, we think there is more to come, says the paper, which recommends to buy.
The shares may not have fallen quite as far as those in Renishaw, which have halved in value over the past three months, but fellow specialist engineer e2v technologies has also been punished by the market, probably more than it deserves. This is one of my tips for 2011, says the Tempus column in the Times. The shares were 91p at the start of the year and duly touched 146p before crashing back. Last night they were up ¾p at 97¾p. The company has expressed some caution over prospects, while a change in the mix in orders, away from long-term defence contracts to supplying industrial and commercial users, is one reason why the forward order book is down from £167 million to £146 million over the past year. But e2v has confirmed it is trading in line with expectations, revenues grew in the first half by an underlying 16 per cent, and there is plenty of potential for further growth. The shares, on 8.5 times this year’s earnings, are trading at a 20-odd per cent discount to its peers, which looks too low. Buy for recovery, the paper recommends.
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