Wednesday tips round-up: Severn Trent, Whitbread, 888
Hopes of Severn Trent being on the receiving end of takeover activity pushed the shares up to a high of 1580p at the end of December. At 1445p, Severn Trent shares are now trading just 20p off the price they traded at in August when the company first admitted that it faced a criminal prosecution.
If investors are willing to bet that Severn Trent's total fines will not be far over £100m the shares may now seem good value.
Concerns about Whitbread's restaurants and pubs business have hit the share price, but a focus on operating margins should limit any decline. In the short term the stock could continue to suffer on consumer confidence concerns, but there is already value here. Book in says the Telegraph. Buy.
Online gamer 888's management believes liability for a final settlement with the American authorities is somewhere between $40m and $100m, which is digestible with the company's strong cash flow. 888 shares, up 3¼p to 150p, compare with the rumoured 135p offer from Ladbrokes and are up from last year's low of 104 ¼p. The yield is a lowly 2.5% but strong cashflow justifies the multiple of 16 times 2008 holdings. Hold on says the Times.
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On Numis's raised forecasts of $63.8m pre-tax profits for the coming year, the multiple is 17 times and yield 2.5%. Given the current growth rates, 888 is worth a small flutter. Buy says the Telegraph.
Property developer Development Securities's shares are up from last autumn's low of 370p. The company is financially sound, but it is not immune to another general write-down in commercial property values. Take profits says the Times.
Housebuilder Telford is hoping to profit from the development of east London's Olympic sites in 2012. With the area's infrastructure being improved, the group expects to benefit from the associated demand from housing in the area and the high number of brownfield sites that can be developed. Hold says the Independent.
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