Friday tips round-up: Barratt, AB Foods, Misys
Barratt shares jumped 10% yesterday, as investors bought in on the idea that its shares - down 75% since its £2.2bn purchase last spring of Wilson Bowden - may be bottoming out.
Buyers may be enticed in by a stock that, judging by promises on future dividend cover, will yield 9% but will have to hold on through volatile times for medium-term gains says the Times.
The independent adds that brokers believe Barratt's profits for 2009 will slip from £430m to £375m, putting the shares on five times expected earnings. That is cheap but buyers would be wiser to hold off until the spring when clearer evidence emerges of housing sales. Hold says the Independent.
With visitor levels down, cancellations up, incentives up and a forward order book down 6% on last year to £1.26bn, 2008 is going to be a tough year. Moreover, 2009 could be worse. Until the spring selling season starts, it is impossible to say which way things will go. Hold Barratt says the Telegraph.
Associated British Foods has now largely come through the dislocation from the EU sugar regime changes and while earnings per share will only edge higher in the current year, from last time's 52.9p to about 54p, the pace of growth should pick up again next time. A p/e about 16.5 is well above the likes of M&S and Next and the smaller food companies, but two or three points below Unilever and Cadbury Schweppes. The shares are worth hanging onto in difficult markets says the FT.
After several flirtations with the Chinese market, software group Misys has finally made a serious move into the gigantic economy. Yesterday's deal with Digital China Financial Software is good news for Britain's third-biggest software company. The shares are now trading at 13.5 times forecast earnings for 2008, at the lower end of their trading range. Hold on says the Telegraph.
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HMV shares trade on a lowly five times expected earnings, but investors should not be tempted by a yield of 6.7%. HMV, like its high street rivals, has yet to deal with the long- term trend of shoppers looking for downloads instead of hard sales of music and film from shops. Avoid says the Times.
Proposals to store natural gas in vast underground craters in rural Dorset and then pipe it to the local National Grid are, to put it mildly, somewhat controversial. But that is what is planned by Portland Gas, which began trading on AIM yesterday after being demerged from the exploration outfit Egdon Resources. Portland, with no visible earnings and £4m of cash, is valued by the market at £160m. The shares will jump if planning permission is given - a decision is due soon. Refusal will scupper the price. Highly speculative says the Independent.
Car dealer Inchcape is fast creating a big and profitable business in Russia just as the UK market gets tougher and margins slimmer. The new international flavour to Inchcape has yet to be reflected in the shares, down 42% over the past year, weighed down by worries over the health of the domestic market which is beginning to matter less and less. Buy says the Independent.
Diploma distributes mostly consumables - things that must be replaced regularly, such as seals for hydraulic cylinders in diggers or endoscopic accessories for surgeons - and so benefit from continuing operational rather than capital expenditure. yesterday's trading update showed underlying sales growth continued during the past three months despite 40% of revenues coming from North America. or 11 times current-year earnings, the shares are still worth holding says the Times.
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