Wednesday tips round-up: Taylor Wimpey, Northern Foods, Game
Taylor Wimpey shares sell on just 5.5 times expected earnings for 2008. That is cheap but it did not stop the price falling further yesterday. The trouble is that the whole sector is depressed and will need lower interest rates and a greater willingness to lend by the banks in time for the all important spring selling season. Hold for now says the Independent.
As a larger entity - it has 11.5% of the UK market - Taylor Wimpey should be better positioned to survive the turmoil, trading on just five times earnings. But, uncertainty is here to stay, at least until March. Hold says the Telegraph.
Northern Foods has undergone a major restructuring, reflected in a strong performance from its chilled food business and a return to profits by its bakery business. But history tells us there is no hiding place when major customers are no longer willing to absorb a supplier's price increases. Northern boss Stefan Barden believes greater emphasis on quality will put it in a good position to negotiate price rises with retailers. Where has he been for the last 30 years? Avoid says the Independent.
With booming Christmas pudding sales and cost increases hedged in until the end of September, Northern Foods appears to be in good shape to cope with the challenging consumer environment. The difficulty is that when the market is in a jittery mood, as it is now, investors are likely to take a whitewash mentality to food companies. Hold for now says the Telegraph.
Yesterday's sell-off in Game shares seemed a little overblown says the FT. It will be hard to provide as strong a performance in 2008, because of price cuts and the absence of a console launch. But appealing to a wider audience through "user friendly" stores and adverts in women's magazines could help fend off competition and capitalise on a changing games demographic. The stock is trading on a price to earnings ratio of about 15, which looks reasonable value given international expansion plans.
With another disastrous warning, I-mate's time on the public market appears to be coming to an end. The City has lost confidence and a sale seems the only viable option. After the first warning, I-mate was effectively restarting from scratch. With little record or brand to leverage, the cash pile will form the basis for valuation. But I-mate has been burning through its cash, which has fallen from $68.5m (£35m) in March to $53.5m in September. Cazenove estimated the latter equated to 22p a share. After further write-offs and delayed sales, next March's figure will be lower still says the FT.
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Travelzest is a niche travel operator insulated from the sharp dips which occur at the volume end of the business. The shares look cheap at just 8.7 times expected earnings, but it needs to demonstrate further solid progress before any serious re-rating is likely. Hold says the Independent.
Debenhams shares closed down 17% on continuing concerns over the vulnerability of the business, its exposure to short-sellers and credibility issues, given its dismal performance since returning to the stock market. There was a feeling yesterday that for all the gains made by Debenhams in the four-week period, it benefited as much from mistakes made by M&S. The shares are on a rating of only six times forecast earnings, despite signs of improvement, they remain one to avoid says the Times.
Convenience foods maker Uniq, with operations in five countries, remains too thinly spread for a small-cap company that must compete with larger, pan-European rivals. Add the prospect of continued pressure on raw material prices and tighter terms from supermarkets and the shares, at 142p, or 16 times 2008 earnings, against ten times for Northern Foods, appear to have already priced in a still-uncertain recovery. Avoid says the Times.
Gresham House's board rejected in September an indicative offer from Parkwood priced at 875p per share, a 3% discount to the company's December 2006 valuation. The credit crunch means that Parkwood may be unable to finance a new offer and the slump in property prices means that any bid would be reduced. At 775p, up from a low of 600p last spring, investors may want to take profits now rather than wait for a quick turaround in Gresham's fortunes says the Times.
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