Bargain shares 2010 update

A year ago Kevin Hart, chief executive of Bowleven, noted that "2010 is shaping up to be the most active period in the west African oil and gas exploration group's history". His optimism was well founded as a drilling campaign in the shallow waters of the Etinde Permit off the coast of Cameroon hit pay dirt, and sent the shares soaring from 113p a year ago to a record high of 414p last month. I advised banking profits three months ago when the shares hit 294p following news of two "potentially significant" discoveries at its Sapele-1 well on block MLHP-5 on the Etinde permit.

Acal (ACL)

Electrical & electronic equipment

Share price: 336p

Bid-offer spread: 330-342p

Market capitalisation: £95.6m

Website: www.acalplc.co.uk

A year ago shares in European electronic components distributor Acal were trading 30 per cent below book value even though cash on the balance sheet accounted for half the share price and management had already taken swift action to take costs out of the business and return it to profitability. In effect, we were getting £16m of its fixed assets in the price for nothing which was not only harsh given the recovery potential, but proved a bargain with the company capitalised at £37.5m.

And that recovery continues apace, with Acal turning in underlying operating profits of £2.8m in the six months to 30 September 2010, driven by growth in the company's electronics order book, cost-cutting and margin improvement. And trading since then has been equally impressive, with underlying sales up 17 per cent in the past 18 weeks. Moreover, Acal has now achieved annualised cost savings of £4.4m.

The company is also using its cash pile wisely and last month acquired Munich-based CompoTRON, a specialist provider of electronic communication and fibre-optic components to the European industrial electronic markets. So, although the shares have more than doubled in the past year, they still only trade on a modest 12 times earnings estimates and are also supported by a 2.1 per cent yield. With scope for further earnings upgrades this year, I continue to rate them a medium-term buy.

KBC Advanced Technologies (KBC)

Aim: Consultant to energy industry

Share price: 70p

Bid-offer spread: 69-71p

Market capitalisation: £38.8m

Website: www.kbcat.com

For over three decades KBC's consultants have provided strategic and engineering expertise to enable energy clients to manage risk, improve strategic decisions, increase operating performance and comply with environmental regulations. A year ago I saw strong recovery potential in the business and this is clearly coming through.

In a trading statement four weeks ago, KBC revealed that sales awards increased 22 per cent to £68m last year and the workload backlog has surged 45 per cent to £58m since the end of June. Cash generation remains strong and the company signed its largest-ever contract in October, a 30-month multi-site service agreement with Mexican state oil group Pemex worth $42m (£26m).

As a result analysts now expect KBC's adjusted pre-tax profits to increase by 21 per cent from £5.2m in the 12 months to 31 December 2010 to £6.3m in 2011. Not surprisingly, the shares have surged, so much so that I advised taking profits on half our holdings when they hit a 12-month high of 78p ('', 10 January 2011). This represented a 73 per cent gain in 11 months, or 77 per cent including dividends. Trading on a forward PE ratio of 11.5 assuming the forecast earnings growth comes through, I would hold on to the remaining shares.

Delta (DLTA)

General industrials

Delisted at 185p

Website: www.deltaplc.com

I was not the only one to spot value in industrial manufacturer Delta. In fact, our 2010 portfolio got off to a flying start after the company received a recommended cash bid from US giant Valmont Industries in early March. I had to settle grudgingly for a 35 per cent total return on an investment, albeit held for only 10 weeks.

Jacques Vert (JQV)

Aim: General retailers

Share price: 17p

Bid-offer spread: 16.5-17.5p

Market capitalisation: £32.7m

Website: www.jacques-vert-plc.co.uk

The clothing retailer behind high street brands Precis Petit, Windsmoor and Planet put on a chic financial performance in the first half to end-October, growing profits by 7 per cent to £3.1m and underlying sales by over 3 per cent. Analysts at broker Seymour Pierce expect a smart outcome for the second half, too, forecasting a rise in full-year adjusted pre-tax profits from £5.1m to £5.5m. So, with the shares trading at 17p, the prospective earnings multiple is still only 6.5.

Jacques Vert still had a £11.2m cash pile at the end of October; strip this from its £32.7m market value and we are in effect getting a business generating £7m of annual cash profits for a bargain basement £21.5m. Add to that a decent 4 per cent dividend yield and they remain a buy.

MJ Gleeson (GLE)

Urban regeneration & strategic land specialist

Share price: 118.25p

Bid-offer spread: 115-121.5p

Market capitalisation: £62.2m

Website: www.mjgleeson.com

The investment case for buying shares in MJ Gleeson remains as strong as it was a year ago. The urban regeneration and strategic land specialist currently has a market value of £62.2m with the shares priced at 118p, but has shareholders’ funds of £97.8m, equating to 187p a share. And at the end of December 2010 around £16.4m of those net assets were in cash, equivalent to 31p a share. So, net of cash, the company's adjusted net assets of £81.4m are being attributed a market value of £45.8m – and the company's assets would have to lose almost half their value for the shares to trade at book value.

That's hardly a realistic possibility since Gleeson owns over 3,800 acres of valuable strategic land in the Home Counties, which in time it will turn into cash by selling onto housebuilders. The board also has a policy of returning excess cash to shareholders – the company paid a bumper 15p a share special dividend last March – and I wouldn't discount the possibility of another hefty payout this year, either.

Bloomsbury Publishing (BMY)

General retailers

Share price: 114.25p

Bid-offer spread: 114-115.5p

Market capitalisation: £85m

Website: www.bloomsbury.com

Life after Harry has been anything other than magic for the publisher of JK Rowling's famous books, with shares in Bloomsbury down 8 per cent in the past year and looking likely to remain under Voldemort's spell. Since the Hogwarts Express ran out of steam, profit growth has been pedestrian. So, although there is clearly value in the company's unloved shares, and management is making the right strategic moves by increasing focus on digital revenues, I am closing the book on this one, and selling up.

Telford Homes (TEF)

Aim: Housebuilder

Share price: 81p

Bid-offer spread: 79-82p

Market capitalisation: £39.4m

Website: www.telfordhomes-ir.co.uk

Shares in east London homebuilder Telford Homes have also disappointed in the past year, falling by 11 per cent, although clearly the board takes a much more positive view of the company's prospects, having raised the first-half dividend by 67 per cent to 1.25p.

Telford remains profitable with analysts at Shore Capital forecasting pre-tax profits of £2.5m and EPS of 3.6p in the 12 months to March 2011, rising to £4m and 5.8p the year after. The expected earnings recovery and the decent 3 per cent dividend yield aside, the shares are also attractive on a price-to-book value basis, trading a hefty 39 per cent below last reported NAV of 133p, most of which is held in land and stocks. I still maintain the shares are worth buying despite their lacklustre performance over the past year.