Tuesday tips round-up: BAE, Cobham, Majestic...

Date: Tuesday 19 Jun 2012

The Independent's Investment View column has taken a look at Britain's biggest defence contractor BAE Systems, saying that while it may be avoided by the 'ethical investor' - given that it supplies high-tech weaponry - there's a financial case for holding the shares for people seeking income.

The column says that BAE's shares sit on an extremely low multiple which reflects a "brutal trading climate" - trading at just 6.7 times prospective earnings - and offer an "extraordinary" prospective yield of 7%.

Given the budget headwinds, the Independent says that BAE probably won't perform strongly in the near term. "However, for income seekers that juicy dividend is at least twice covered by earnings. The yield isn't going to rise by much looking forward, but it probably is sustainable, although the net debt is hardly insignificant (gearing is at over 80%)."

The paper also looks at "the smaller and more nimble" Cobham, which is reacting to tough trading by attempting to increase revenues from the commercial side of its business.

The column thinks that Cobham's focus on high-tech communications should "pay off" in the long term. However, given its US exposure and the fact that it's trading at 10.5 times this year's earnings and yielding nearly 4%, "the shares are fairly rather than keenly valued at the current level and are worthy of a hold recommendation at best."

The Questor team at the Telegraph have recommended to 'hold' shares of wine retailer Majestic Wine, saying that the stock has not yet fallen to level that present a buying opportunity, especially given that shares trade at 15 times earnings.

"If only the shares were a touch cheaper then we would join the hordes who are buying Burgundy and New Zealand Sauvignon Blanc like there’s no recession. That said, Monday’s record annual results are difficult to ignore," the column writes.

Tempus in the Times has cast its eye over London-focused regeneration specialist Quintain Estates and Development which yesterday announced that it is hooking up with a Hong Kong investment group which has agreed to pump money into the development of the Greenwich peninsula in south London. The column says that the deal is a "neat one" for Quintain: "It does not have to put any more money into Greenwich, a relief to long-suffering shareholders."

The shares have suffered as the market has worries about cash leaking out of the company the need to reschedule debt, but these worries have subsided slightly with the stock jumped 15% yesterday. "They are still at a huge discount to net assets, which, after completion of the deal, will be 108p a share. Further progress could be slow, though."


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BC

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