After the robust success of our Tips of the Year in 2005 and 2006 - when they rose, on average, by 13.7 per cent and 28.9 per cent, respectively - the performance of 2007's crop of buys was certainly more mixed. On average, 2007's Tips of the Year rose by a solid enough 19.2 per cent (see table below) - substantially outperforming the 0.56 per cent slippage in the FTSE All-Share index over the same period.
We also did better than a lot of our media rivals. The Sunday Times' 2007 share picks fell by 15.1 per cent. The Guardian's fell 6 per cent. The Sunday Telegraph did better - up 14 per cent - but still not as well as we did. In fact, a table put together by Ian King (business editor of The Sun) and reported on FT Alphaville puts us ahead of all other mainstream UK newspaper tipsters.
But that masks a miserable performance by some iof our tips and a truly stellar performance by others.Take Anglo Irish Bank, for example. Despite being operationally robust itself, its shares have been hit hard as the liquidity crisis in the interbank market took hold - bad news for all financial companies in the second half of the year. A weaker Irish housing market didn't help matters, either. And it was housing market woes that help explain the poor performance of shares in building products supplier Kingspan, too. Thankfully, our portfolio contained plenty of stars, too, with the oil and gas players leading the way. Imperial Energy's shares jumped 111 per cent, while Burren Energy - now the subject of a bid from ENI - rose 41 per cent. And shares in electric vehicle maker Tanfield shares soared 140 per cent, helped by positive sentiment towards companies with an environmentally friendly angle.
TIPS OF THE YEAR 2007 PERFORMANCE
Anglo Irish Bank
Readers who took our advice a year ago to buy shares in Irish lender Anglo Irish Bank at €15.39, are now nursing some pretty painful losses - they now trade at just €10.80. But its operational performance has been decent. With its full-year results in November, Anglo reported a chunky loan book hike, decent credit quality and healthy lending margins. True, the Irish housing market has certainly seen better days, but the Irish economy continues to boom compared with the snail-like growth found elsewhere in the eurozone. Indeed, Anglo's share price problems largely reflect the poor sentiment towards almost all banks since August's credit crunch struck. But, unlike some lenders, Anglo's funding situation looks secure - it's heavily reliant on relatively cheap retail deposits to fund its book. Moreover, analysts continue to anticipate double-digit earning growth during 2008, which leaves the shares rated on just 7 times forecast earnings. Liquidity crisis or no liquidity crisis, that's just too cheap for this solid player. Keep your nerve and buy.
Burren Energy
Burren Energy's shareholders have until 10 January to tender their shares to incoming agreed acquirer, Italian state oil company ENI, at 1,230p - that's a handsome 43 per cent uplift on the 862p at which we suggested buying the shares last year. Our faith was, however, tested throughout the year as the shares languished below our tip price until the autumn. But, after that, the rest of the market finally woke up to Burren's bid target status as a relatively cheap entry into some very cash-generative oil production in Congo-Brazzaville and Turkmenistan. But, while we originally touted Burren's charms for a predator, in the end it was ENI, a partner in Congo-Brazzaville, that made all the running. A fully-fledged bid contest failed to emerge, despite other parties expressing interest. With ENI having now locked up so much stock that a counter-bid looks virtually impossible, brokers are quoting a 1,214p-1,215p spread - below the offer price - to catch any shareholders too dim to realise that they can sell their shares directly to ENI instead.
Imperial Energy
Now trading at 1,377p, shares in Russia-focused oil and gas company Imperial Energy have more than doubled since we suggested buying them at 653p at the start of 2007. But it hasn't been plain sailing. Ironically, our tip cited chief executive Peter Levine's confidence that Imperial would remain free from the state interference dogging larger companies in Russia. A significant reserve upgrade last spring thrust Imperial onto the radar of hostile elements in the Russian administration, resulting in a series of dust-ups over reserves recognition and licence validity. Happily, however, to date these elements have conspicuously lacked the essential backing of Russia's natural resources ministry. Meanwhile, Imperial is going from strength to strength in terms of re-booking its Russian reserves to the satisfaction of the ministry, while the shares still trade significantly below a per-share value of those same reserves. If you can stomach the wild dips the shares suffer every time a Kremlin apparatchik mutters something defamatory about the company, then they remain long-term good value.
Kingspan
Kingspan says that 2008's operating profit growth is likely to slow to the mid single digits, after jumping by around 22 per cent in 2007. Indeed, trading in 2007 was strong in nearly all parts of the business, with sales of insulation boards up and the access and raised flooring side having enjoyed record demand. Much of this demand was driven by legislation, either at national or EU level. Kingspan has also been busy expanding its output capacity, with eight projects lined up for 2008 and 2009. However, Kingspan was always going to struggle to improve on 2007's robust performance - although the drive for better insulation should see demand there maintained, albeit at a slower pace than that seen in 2007. Neither have the shares been grim performers all year. After we suggested buying them at €18.91, they rose as high as €22.67, before sliding to just €10.90. That mainly reflects uncertainty in the construction industry and poor sentiment towards building products suppliers. And despite Kingspan's strengths, that negative sentiment looks set to stick around. Fairly priced.
MWB Business Exchange
What a difference a year can make. When we suggested MWB Business Exchange's shares, few were expecting anything but a buoyant London office rental market - at least until late 2008, when new developments were expected to come on stream. But the credit crunch has changed things. With big banks writing off large amounts against their sub-prime-related investments, something will have to give. This could mean bad news for office rents and City employment levels, both of which help underpin demand for the flexible office space offered by MWB. However, the rot is yet to set in and rival flexible office space provider Regus was reasonably upbeat when it issued a trading statement in December. Still, that has not been enough to stop the market from worrying that worse is to come and MWB's shares have slumped 33 per cent from our 166p tip price. Given the uncertainties, buying the shares may now be too optimistic - but, given Regus' recent update, they remain good value.
National Grid
Investors who followed our advice and bought shares in National Grid, at 744p, would have made a healthy profit; they now trade at 829p. That share price growth reflects plenty of operational progress. The company has sliced through the administrative red tape associated with its acquisition of US gas distributor KeySpan - that should generate cost savings of up to $200m (£97m) a year over the next three years. And National Grid has also sold its wireless unit and its Basslink electricity interconnector - allowing it to return over £1bn to shareholders through share buy-backs. Indeed, the company has a policy of returning a good portion of the money raised from disposals and a further £1bn is anticipated to head back to shareholders in the next six to 12 months. Moreover, National Grid could also sell its chunky brownfield property portfolio. Add that to the tasty dividend yield, decent earnings growth and the possibility at least - huge though National Grid is - that it could eventually get taken over, and investors should keep buying.
Nationwide Accident Repair Services
Investors have had a rollercoaster ride since we suggested buying shares in Nationwide Accident Repair Services (NARS) at 164p. NARS, which provides car crash repair services, floated on the Alternative Investment Market (Aim) in July 2006 at 111p and the shares rose as high as 188p in January, only to fall back to 106p now. That partly reflects a lost Royal Bank of Scotland contract, which hit first-half operating profits. However, NARS' second half performance is likely to be better. It has won a £15m contract with Hastings Direct and has also negotiated an extension to its existing contract with AXA so that it covers a greater geographic area - at £6m the contract is expected to generate up to four times the revenue of the existing AXA contract. NARS has also signed a three-year deal with Norwich Union, which should generate £20m of new revenue. So, with fresh evidence of its ability to win new contracts, and with the shares trading on just 7 times 2008's expected earnings, the recent de-rating looks overdone. Buy.
Smiths
It has been a mixed year for Smiths. However, those who took our advice and bought shares in the industrial conglomerate would still have ended the year in the money. We suggested buying the shares a year ago when they were trading at 965p, but not everything has gone smoothly. Smiths Medical had a difficult start to the year and the shares also took a knock after the cancellation of a joint venture between its detection unit and General Electric to make airport security equipment. However, break-up speculation - heightened by the appointment of break-up specialist Philip Bowman as the group's new chief executive - may be supporting the shares as analysts put Smiths' sum-of-the-parts valuation in the region of 1,025p-1,100p a share. Although trading for the 2008 financial year is off to a good start, Smiths, like most engineers, is feeling the ill winds of the weakening dollar. But, at 1,107p, there could still be some upside. Good value.
Spice
Spice's shares hit 673p at the time of the group's impressive full-year results in May. But, as the market turned, the shares slipped and, following December's strong set of half-year figures, they have finished a respectable 24 per cent up on our 415p tip price - although that remains well down on the summer's high. However, away from the hurly burly of the market, Spice's progress has been more consistent and arguably more impressive. It has bolstered its market position through acquisitions while continuing to deliver strong organic cash profit growth (30 per cent at the half-year stage). That's been achieved by targeting non-discretionary maintenance work in the public sector and regulated industries. Contract wins have been impressive and the group's acquisition of Revenue Assurance Services in October has considerably broadened the business and provides new cross-selling opportunities. The shares are rated at 19 times broker Altium Securities' full-year adjusted EPS forecast of 28.1p. That's not cheap but, given the strong prospects, we continue to rate them a buy.
Tanfield
Shares in electric vehicle maker Tanfield have soared 140 per cent, to 132p, since our 55p buy tip - but they have been as high as 203p during the year. That reflects the great strides being made by the group's Smiths Electric Vehicles and Upright powered access divisions. On the back of the current environmental zeitgeist, the electric vehicles unit has transformed itself from a milkfloat maker into a manufacturer of the next generation of electric powered urban delivery vehicles, and orders are ramping up. But the main growth driver in 2007 was actually the powered access division, providing industrial access platforms. Since being acquired in 2006, Upright's performance has been transformed due to a vastly improved supply chain and better sales channels. The unit bolstered its business, and US prospects, in June by buying Snorkel Holdings. And, despite the excellent share price run, they still trade on a fairly undemanding 16 times house broker St Helen's Capital's 2008 earnings estimate - add that to the impressive long-term growth story, and investors can expect more upside. Buy.
