Join our community of smart investors

Press headlines & tips: Croda, GKN, Provident Financial

Find out which shares today's quality papers are tipping
February 27, 2013

Over the last few years Croda has reinvented itself as an innovator producing advanced patent-protected ingredients for the cosmetics, coatings, agriculture and energy industries. Much of the growth has been organic, but Steve Foots, the Chief Executive, is particularly proud of his network of scouts seeking out acquisition targets with interesting technologies. Production is gradually being shifted overseas because of the cost advantages and to be nearer Croda's growing customer base in the Far East and Latin America.

The shares have quintupled in the space of four years. That's partly a function of the strong profits growth but also the result of a big uprating: the shares now trade on a pricey 20 times earnings. As well, two years ago the company decided to hand more of its abundant cash back to shareholders, boosting the dividend by 57 per cent in that year alone and it has kept growing. The company says it has made an encouraging start to this year, although it is anxious about the prospects for the European economy. Furthermore, the racy rating leaves little margin for error. The chemicals business is hardly immune from setbacks. The shares seem to have got a little ahead of reality. Take some profit, says The Times' Tempus (Last IC rating: Hold, 26 Feb).

Engineering and aerospace component manufacturer GKN yesterday beat consensus estimates with its yearly results. Full-year sales for the group as a whole rose 13 per cent to £6.51bn, with pre-tax profit up 68 per cent to £588m. However, when one-offs such as gains and losses from derivatives are stripped out, profits rose a more modest 19 per cent to £497m. For the year as a whole the dividend pay-out increased by 20 per cent. More tantalizingly, the return on average invested capital came in at 18.1 per cent, just shy of its ultimate target of 20 per cent.

GKN shares are trading on a 2013 earnings multiple of 10, falling to nine next year. This does not seem overstretched. The Telegraph's Questor team last said buy on August 4th last year, when the shares were at 210.6p. Following the share rally since then, Questor says hold (Last IC rating: Buy, 26 Feb).

Figures out yesterday from sub-prime lender Provident Financial showed that the company continues to sail through the crisis with barely a blip. Customer numbers grew by 9 per cent to 2.74m. Pre-tax profits were up 12 per cent to £181m, while the dividend was raised by the same proportion to 77.25p. It is true that the core doorstep-lending business struggled to make progress this year, given part-time, hourly-paid workers in rented accommodation's unwillingness to take on any more debt in the face of squeezed living standards (although the bad debt rate was stable).

That's not the case in the other main division, Vanquis Bank, which offers credit cards to borrowers turned down by mainstream banks. Profits here leapt by 61 per cent to £71.3m, while arrears levels remain at record lows. For the longer-term, a pilot project in Poland is producing good results and could be the basis for a very large new business. The company trades on 14 times earnings and yields more than 5 per cent. For such a reliable earner, that valuation looks ungenerous. It hasn't made a loss in 132 years. The threat of a crackdown on sub-prime lenders hangs over the shares, but successive governments have always shied away from a cap on interest rates. Buy says Tempus in The Times (Last IC rating: Buy, 26 Feb).

 

Business press headlines:

Barclays is expected to reveal next week that as many as 600 of its staff are paid more than one million pounds, in the most detailed disclosure yet about how much its 140,000 employees take home each year. In a move that could force rival banks to follow suit, Barclays is preparing to report how much its staff earn through a wide range of pay scales, shedding light on the pay of its lowest and highest paid staff.

Under the direction of chairman Sir David Walker, Barclays is to adopt a new way of providing information about pay when it publishes its annual report next week, potentially re-igniting the row over the high bonuses handed out in the City. Analysts estimate as many as 600 Barclays staff could take home more than £1m. It is understood that Royal Bank of Scotland is considering whether to provide more information about pay for 2012. [The Guardian]

Banking giant JPMorgan Chase plans to slash up to 19,000 jobs by the end of next year as it looks to cut its overall expenses. The move, which will see 3,000 to 4,000 posts go this year at its consumer bank, mainly through attrition, comes despite the US group reporting record profits for the past three years. Between 13,000 and 15,000 jobs are likely to be cut at JPMorgan's mortgage banking unit, the firm said yesterday in a presentation to investors. [The Scotsman]

BP failed to apply its own safety and risk management system to the Deepwater Horizon oil rig, which exploded in the Gulf of Mexico, in what was a "tragic" and "egregious" oversight, the first witness in a long-awaited civil trial over the 2010 oil spill said. Robert Bea, an engineering and safety expert from the University of California at Berkeley, took the stand after Judge Carl Barbier began the second day of hearings as the trial unfolding in a New Orleans courtroom. [The Independent]

George Osborne must reject renewed calls for a budgetary U-turn because it would jeopardise Britain's ultra-low bond yields, the European Union's economic chief has warned. Olli Rehn, Vice-President of the European Commission, said that the coalition's deficit-reduction plan remained decisive in locking-in low borrowing costs even as the national debt heads towards economically damaging levels. With European markets again in turmoil after an electoral revolt against austerity in Italy, Mr Rehn also warned that it would take time for the eurozone to win a clean bill of health, although he insisted that the bloc was "out of intensive care". [The Times]

The Bank of England is considering the "extraordinary" idea of negative interest rates as one of a number of radical policies to help return the UK to growth. Paul Tucker, deputy governor for financial stability, raised the possibility in front of MPs after saying the Bank could be doing more to help the economy, including measures to boost lending to small businesses. Negative interest rates would mean high street lenders paying the central bank to place their money with it. The move would be intended to encourage more lending to businesses and households. But it could also lead to a reduction in the interest paid on individual savers' accounts held with high street banks. [The Telegraph]

Leaders of Italy's two main parties have made their opening gambits towards forming a new government after an election deadlock that saw voters reject European-backed austerity policies and a discredited political elite. Pier Luigi Bersani, Democratic party leader, laid claim on Tuesday to the post of prime minister on the basis that his centre-left coalition had won the most votes in both houses of parliament, even though it fell well short of a majority in the senate. But after the shock result on Monday that showed a surge in support for comedian Beppe Grillo's anti-establishment Five Star Movement, Mr Bersani admitted: "We did not win, even though we came first." [Financial Times]