Wednesday tips round up: Carpetright, Arm, BP
Wobbly credit markets pulled the rug from under Lord Harris's attempt to take Carpetright private late last year.
He was offering 1250p, which now looks extraordinarily generous, considering the weakness in the market, which must have been apparent to such an experienced retailer. The price has fallen 37% since tabling the offer. If any trader is capable of riding out an economic storm, it is Lord Harris. On that basis, the shares, at just 12.3 times expected earnings, look tempting. Buy says the Independent.
The problem for Carpetright, says the Times, is that it is unlikely to have felt the full effect of the housing slowdown: weakness in sales so far appears to have been driven by poor consumer confidence rather than fewer people moving house. The shares, although yielding 6.6%, trade at more than 12 times current-year earnings, a premium to its sector. Sell says the Times.
Carpetright has traditionally led the retail sector out of recession - and the shares will follow once sales bounce back. But it is too early to buy. Hold says the Telegraph.
Last year, chip designer Arm produced revenue of £259m, up by 6%, while profits grew 15% to £86.7m. The company is guiding the market towards a similar sales rise this year, but over a longer three- to seven-year term expects a return to mid-teen growth which characterised its time as a stock market favourite. Once worth £9bn, it has shrunk to £1bn. The shares sell on 17.5 times forecast earnings. Hold says the Independent.
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The shares sit at 17 times 2008 earnings, which seems steep given the danger of further downgrades. Avoid says the Times.
As Cazenove pointed out yesterday, Arm's premium rating partly reflects the perception of high earnings quality compared with other companies in the sector. So while 2008 could be a rocky ride, the longer-term outlook remains strong. Hold on says the Telegraph.
Business-class only airline Silverjet pays no dividend and is not even forecast to be profitable for two years yet, meaning investors looking for capital growth are taking a gamble. The Telegraph sees turbulence ahead. Avoid.
With its problems in the US refineries nearly resolved - which will reduce the drag from heavy repair and maintenance spending - the focus should return to BP's restructuring efforts and its newer producing assets. On the view that BP's long period of underperformance against Shell is nearing its end, the shares, at 543p - yielding 5% and trading at nine times 2008 earnings - are worth tucking away for the long term. Buy says the Times.
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