Thursday tips round-up: International Power, Micro Focus, Balfour Beatty

Date: Thursday 12 Nov 2009

International Power is one of those companies that is a staple of the FTSE100 and yet somehow manages to be largely unknown. Yesterday's bullish statement sent the shares up sharply. Possible new projects in North Africa, Asia and the Gulf, make for strong growth prospects when world economies pick up again and power demand soars. Trading on just over nine times forecast full-year earnings while offering an attractive enough yield of about 5 per cent this year and next, we're buyers, says the Independent.

Yesterday’s first-half trading update from software developer provide Micro Focus International eradicated any lingering concerns over the strength of the underlying business. On the view that the newly acquired businesses could provide scope for additional profit upgrades and that Micro Focus’s discount to the software sector still has room to close, the shares, at 410½p, or 12 times next year’s earnings, should be bought on weakness, thinks the Times.

Last week Warren Buffett was said to have taken "a huge bet" on the US economy through his purchase of railway group Burlington Northern Santa Fe. Another company that sees solid prospects for the US economy is Balfour Beatty. Questor advised shareholders to take up their rights in September when the Parsons Brinckerhoff acquisition was unveiled. The shares are currently 10pc below the Telegraph’s adjusted tip price, but the newspaper’s stance on the shares remains buy.

If the quoted property sector has a problem, it is not in raising money but in spending it. So, five months after it secured £166 million through a rights issue, Great Portland Estates (GPE) should be commended for finding an apparent path round that impasse. In the first West End development deal struck with a bank, GPE has agreed to buy two Central London sites and restructure the debt held on them by Germany’s Eurohypo, the specialist lender. Tempus advised “buy” in May, since when the shares have gained 18 per cent. At 282½p, or a 10 per cent premium to forecast March 2010 net asset value, that remains the case, says the Times.

A double whammy of low rates and low investment income for the insurance industry means low commissions for a broker like Jardine Lloyd Thompson (JLT). The group's interim management statement didn't change the guidance given at the interim stage and said there should still be progress this year. So, the world isn't fall apart, but neither is there much to get terribly excited about. For residents in the Southern US, the hurricanes staying away this year is good news. Not for JLT. Given uncertain prospects and an IMS that was hardly upbeat, the Independent says sell.

The future for John Menzies, the aviation services-to-newspaper distribution company, was looking rosy in March when its shares fell to a lowly 43p. Investors' concern over debt and the tanking aviation and media markets weighed on the price. But since then, it has staged a remarkable rally. Menzies has helped itself by keeping a tight rein on costs, paying down that debt and winning new aviation and newspaper contracts. Despite the soaring shares John Menzies still only trades on a forward 2009 price to earnings ratio of 8.6. This leaves us to believe that its recovery still has wings, despite operating in two of the more challenging sectors over the short term. Buy recommends the Independent.

It is tempting to read the 4 per cent fall in Ultra Electronics as disappointment that Douglas Caster is stepping down as CEO. But what unsettled the stock market was Ultra’s disclosure of “recent evidence of delays” in UK contract awards: an admission that tighter public finances are starting to take their toll. But it is Ultra’s exposure to “smart” defence applications, a strong balance sheet and vulnerability to takeover from a larger contractor that, at £13.09, or 13 times earnings, is cause to hold on, says the Times.


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