30. MAX PROPERTY
A few years ago, Max Property’s (MAX) business model would not have found favour with the more risk averse investor, buying out-of-fashion property assets in the middle of a downturn, albeit at deeply discounted prices, and either reselling at a profit or installing a reliable tenant.
The investment vehicle is managed by Prestbury Investments, headed by the redoubtable Mike Brown, who admits that some parts of the market in London are becoming too expensive, although he believes there are still opportunities to be had. Rents in St Katharine’s Dock for example, where the group owns a number of buildings, have risen sharply, thanks in part to tenants being priced out of the expensive West End.
The fund is due to be wound up in 2016, but considerably more value can be extracted before then, with net asset values forecast to have risen 18 per cent in the year to March. We suggested buying the shares at 123p (21 July 2011), since when they have risen 28 per cent but still trade on a par with forecast NAV. And given the strong growth profile, notably as interest in regional assets gathers pace, we remain buyers. JC
29. NICHOLS
For soft-drinks maker Nichols (NICL), home to brands such as Vimto, Sunkist and Panda, last year was all about improving profitability in the UK by toning down promotional activity on its carbonated drinks, rather than squeezing out sales growth at any cost. That focus has now paid off, as the beverage maker recently reported a set of full-year results bang in line with market expectations, with an impressive 310 basis point improvement in the gross margin.
The Merseyside-based company also has a profitable overseas business – last year international revenue increased to £23.1m, with a 21 per cent jump in Africa – and it’s expanding its reach by moving into Nepal and Burma this year. Earnings are therefore expected to rise in 2014 and international sales should accelerate. But despite the good growth prospects, and an improved margin structure, the shares have fallen 15 per cent since the start of 2013. This leaves them trading on 20 times earnings forecasts, which is an unjustified 12 per cent discount to peer AG Barr (BAG). As such, we reckon the share price weakness could be a temporary blip and might offer a nice buying opportunity. JB
28. NUMIS CORPORATION
With buoyant financial markets, and roaring IPO conditions in particular, it’s unsurprising that investment bank and stockbroker Numis Corporation (NUM) is making robust progress. Indeed, during 2012-13 it saw revenue jump 55 per cent as the group brought seven new companies to market – including such big names as Foxtons (FOXT) and esure (ESUR).
It also helped 31 companies to raise £2.2bn in total during that period, compared to just £717m in the year before. That performance has continued into the current financial year, too, and Numis completed 22 transactions in the half-year to end-March, including five IPOs. Given that Numis managed just seven transactions in 2009’s depressed first half, that’s a remarkable demonstration of the scale of recovery seen in Numis’s markets since the financial crisis. In recent years, Numis has also successfully pushed though a cost-cutting programme and has created a more diverse revenue stream – including an increased focus on the retail bond market. Management expects to report first half revenues and profits (on 7 May) that are “significantly above” the same period last year.
But the shares have soared almost four-fold since June 2012 and now trade on a demanding 19 times historic earnings. The 2.8 per cent yield isn’t overly generous, either, and broker coverage is virtually non-existent. Hold. JA
27. PREZZO
There can be little doubt that budget friendly, high street restaurants have done well out of the recession. And like its closest peer Restaurant Group (TRG), Italian chain Prezzo (PRZ) has seen its shares soar since mid-2012, as investors jump on the trend.
A rampant expansion plan which saw the chain add 28 new sites in 2013 shows no sign of slowing. In 2014, a further 25 to 30 restaurants are expected to join the already sizeable estate, which comprised 237 operating restaurants by the end of last year. The company has said it is particularly pleased with ‘encouraging’ early trading from its newest brand, Cleaver, a meat-centric offering which opened its doors last summer.
More troubling are analysts’ projections that supply will continue to outstrip demand in the restaurant sector, which is already proven by weaker trading at Prezzo when compared to 2008-2012 average figures. This has cast doubt on the value of the shares at their current price, especially since they carry a punchy rating of 20 times forward earnings. This compares to Restaurant Group (on 22 times), but the latter business owns a far wider array of brands, and Prezzo’s share price could be due a correction. Hold. HR
26. EMIS
England’s healthcare industry is in a state of flux, with growing numbers of healthcare providers being granted the power to select their software suppliers. One beneficiary has been EMIS (EMIS), which provides hospitals, pharmacies and clinics with software to share medical data. It added over 100 GP practices and nearly 300 high street pharmacies to its client base last year, taking its share of those markets to 53 and 35 per cent respectively.
EMIS also acquired healthcare systems business Ascribe, which counts the majority of NHS hospital trusts and boards among its customers, and earns close to 20 per cent of its recurring revenues in Australasia. EMIS expects the deal to create cross-selling and saving opportunities, and broaden its international reach. Overall, last year’s gains meant EMIS’s recurring revenues climbed 17 per cent to £81.4m, or over three-quarters of its total sales. That drove a 14 per cent surge in adjusted operating profits.
Shares in EMIS are up 5 per cent on our buy advice last month, but still trade at a reasonable 15 times forecast EPS estimates. The business is growing rapidly and gaining market share, and looks set to benefit from the new framework for GPs’ software selection. Buy. TM
25. RWS
Patent translation and search specialist RWS (RWS) has a commendable track record. Formed in 1982 and listing on Aim in 2003, the company has delivered growth in sales, profits and dividends in each of the 10 years since the float. Acquisitions have played a key part, but organic growth has also contributed as big multinationals ramp up patent filings and RWS grows market share. The recent trading statement confirmed this should be another year of progress, with sales up 27 per cent in the first four months of the current financial year.
There are some uncertainties. Stronger sterling is a headwind and new EU rules, which will reduce the number of languages in which patents need to be filed, are expected to come into force in late 2015. But RWS says the impact on its business should be minimal as its clients are showing little interest in switching from the current system, which will run indefinitely alongside the new regime.
Nevertheless, the rating looks too full to justify a buy call. The shares trade on a cash-adjusted price-earnings ratio of 22 times this year, dropping to a still punchy 21 times next year. However, the modest dividend yield and that sterling track record makes them worth holding. KG
24. POLAR CAPITAL HOLDINGS
Polar Capital (POLR) is on a roll at the moment. Assets under management at the end of 2013 were up 80 per cent from the previous year at $13bn (£7.8bn), thanks to a steady net inflow of funds and a pretty impressive investment performance. Predictably, performance fees in the nine months to December were up from £5.4m to £7.6m, and back in September the interim dividend was doubled to 4p a share. This is good news for external shareholders and also for the directors and company employees who between them hold around a third of the issued share capital. The solid investment performance has spread across most asset classes, although the group really scored by holding funds in Japan and North America.
Predictably, this has led to some fairly hefty upgrades, and Numis is forecasting 81 per cent adjusted earnings growth in the year to March 2014, although it’s worth pointing out that with this comes considerable risk, given that 45 per cent of assets under management are in Japan. Taking off the volatile performance fee component leaves the shares trading on 18 times 2015 forecast earnings, and up with events. Hold. JA
23. MULBERRY
English luxury brand Mulberry (MUL) is in the middle of a major wardrobe crisis. Blighted chief executive Bruno Guillon was pushed out last month following a serious profit warning in January, when the purveyor of posh handbags reported a slump in sales and profit. Deteriorating trading in the UK and heavy wholesale cancellations mean sales will be flat when the company reports its full year results in the next month or two. This bad news comes at a time when Mulberry has committed to a store opening programme and needs to invest in the business to boost growth overseas. That means profit for the fiscal year to 31 March will be substantially below market expectations.
The problem for Mulberry is that more than 80 per cent of its revenue is generated in the UK and Europe, so while international retail sales have been growing strongly, they represent a fraction of the total. Meanwhile, the brand has seen declining footfall in the UK and a slump in its wholesale business, while online growth is pedestrian at best. There’s a huge amount of heavy lifting ahead as the fashion house accelerates brand awareness further afield, particularly in Asia, but this will be difficult to achieve with a management team in disarray. The shares come with a price tag completely out of kilter with their value, too – not unlike Mulberry’s handbags. Sell. JB
22. DART GROUP
Airline and package holiday operator Dart Group (DTG) is another Aim-traded company grateful for the recession and consumers forced onto a budget. Its low cost airline Jet2 reported a 13 per cent increase in passenger traffic in the six months to September, with group profits growing by a third during the period.
For the year ended March, the group has already said results will be good and meet current analyst expectations of 10 per cent profit growth year on year. The package holiday business, Jet2holidays, is considered the main driver of growth. At the time of the half-year results, Dart said revenues from the division had soared 110 per cent to reach more than £380m as the number of customers paying for all-inclusive breaks had doubled for a consecutive year.
More recently, Dart said its summer 2014 season is already 50 per cent sold and will boost revenues via new ‘add on’ products now being sold alongside the holidays, such as insurance and car hire. Even its previously underperforming operations and logistics arm, Fowler Welch, is said to be on track to report profitable growth. A serious cash pile of nearly £250m also helps it outstrip the competition. Buy. HR
21. BLINKX
Online video specialist blinkx (BLNX) has seen its stock price halve this year, after a Harvard professor criticised its revenue model in a blog post. But after an internal investigation turned up nothing unusual, shareholders will be hoping it’s back to business as usual.
Spun off from software company Autonomy in 2007, blinkx has over 1,100 content partners and earns 95 per cent of its revenues from online advertising. Its search engine, which analyses text, speech and images to deliver relevant search results, continues to be a hit. Its adjusted cash profits climbed two-thirds to $18m last half as it bought US competitor Grab Media, attracted high-profile advertisers including Nike and Nestlé, and expanded its tech, sales and product teams. And this month it launched ‘branded content hubs’, dedicated online channels where companies can showcase all of their video content.
The company estimates that sales and adjusted cash profits grew about 23 per cent in its past financial year – a sharp slowdown from 2012. And although it should benefit from rising demand for online advertising and video consumption, its shares trade at 14 times broker Numis forecast estimates, which doesn’t strike us as cheap. We downgrade to hold. TM
