Date: Tuesday 01 Jul 2008
LONDON (ShareCast) - Despite the price of coal continuing to rise, power station operator Drax has managed to lock in the margin it currently generates by signing plenty of forward sales contracts.
But commodity prices are very volatile, and while investors have done well out of Drax in the last year, increasing coal costs have the potential to be damaging. Buyers should be cautious for the time being. Hold for now says the Independent.
By the end of this year, about one-tenth of Drax's fuel should come from “biomass”, such as waste wood and straw. At 739p, or nine times 2008 earnings, and yielding 7%, Drax remains a bet on the relative movements of gas and coal prices. However, after its recent run, there will be better times to buy adds the Times.
Engineer Senior’s misfortune is to draw two thirds of its profits from commercial aerospace, where worries over oil prices and high fixed costs have overshadowed the industry’s record order books. At 98½p, Senior trades at less than ten times, despite forecast earnings growth of 33%. Yet, short of a sharp, sentiment-changing oil price fall, it is difficult to see what will drive the shares higher. Hold says the Times.
Contractor Carillion reckons that it will achieve double-digit earnings per share in the first half-year, compared with the same period last year. The group's order book stands at £20bn, compared with £15.8bn last year. The sector is one of the safest around, and the opportunity to buy a company that presently trades at a discount to its peers should not be readily passed up. Buy says the Independent.
Clapham House owns a number of eatery chains, including Gourmet Burger Kitchen and Tootsies. The group yesterday posted a 30% rise in profits, and while the number of new outlet openings has slowed, the group expects to add as many as 18 restaurants this year. Buy says the Independent.
Clapham House had ambitious plans when joining Aim in 2003. The company grew fast and the shares more than trebled on the back of UK and overseas potential. That came to a halt with a profit warning in December and the company shelved openings. In the past year the shares have slumped. Rising energy and food costs weigh on sentiment across the sector and there is little sign Clapham can withstand that much better than peers. Bid speculation will buoy the shares, but they remain an acquired taste, says the FT.
Clapham is valued at £56m, including debt. The break-up value is at least twice that and a forward multiple of 14 times is also modest for a company whose earnings should rise 30% this year. Hold says the Times.
Forth Ports has a £790m market value and around £260m debts. Analysts forecast ebitda from the ports of around £65m this year. Adjust for Forth's one-third stake in Tilbury Container Services and the ports are being valued on an enterprise value/ebitda ratio of around nine times. Put the ports on the average 14.5 times and the shares are worth £25.20. Even if the next calculation of worth for the property is slashed 25pc, that drops to £23. For patient investors, the shares are a buy says the Telegraph.
Courtesy car supplier Accident Exchange's daily cash collection has been rebuilt to £673,000 a day in the past two weeks, and needs to reach £725,000 a day to break even. At the same time, it is improving the utilisation rates for its fleet of cars, many of which operate at the prestige end of the market. Forecast revenues for this year of about £203m would generate adjusted profits of about £21m, according to Landsbanki, its broker, which has set a target price for the shares of 131p. That would represent a prospective multiple of 6.1 times, similar to rival Helphire's, says the FT.
Online retailer Asos deserves a considerable premium to the blighted retailing sector, but it does not deserve a market capitalisation that is 50% higher than Ted Baker or a share-price multiple of three times sales, or 46 times historic earnings per share. There is no room for error built into buying Asos at these heady levels. It is the most exciting UK retailer around, but that excitement has gone too far says the FT.
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