Black Beauty: A thoroughbred quadruped?

Right chaps got it! Going to paste the whole article rather than the link as it makes rather different reading to my previous understanding.

January 01, 2004

Tempus

A hard act to follow, but here goes with our tips for 2004 . . .
By Robert Cole

EVERYONE always wants to do better. It is simple human nature to want to enhance, develop and seek growth. It is therefore most tempting for the Tempus writers to do everything possible to improve on the average 50 per cent gain achieved by the Ten to Follow for 2003.
With a lot of luck the Ten for 2004 might go one step further. But it would be foolish to set out to beat our impressive 2003 performance. To do so would mean taking on a level of risk that would send shivers down the spine of any sensible investor. In terms of the selection of Ten to Follow in 2004, Tempus eyes are fixed firmly on the trio of performance targets set in previous years. We wish to record gains in absolute terms, gains ahead of those that could be achieved by depositing money at the bank, and gains ahead of those made by someone who simply tracks the FTSE all-share index.

The Tempus Ten to Follow for 2004, therefore, have been selected to emulate and complement the pleasing advances recorded in 2003. The 50 per cent gain of last year was lovely, but 10 or 15 per cent this year would be perfectly satisfying.

We have set out to identify shares that are reasonably priced in companies that are well run and occupy promising or reliable markets. We have also sought shares from different parts of the risk spectrum. Three are low risk, four are medium risk and three are high risk.

In the low-risk category comes BP, the oil giant. It is exposed to the oil price, which remains higher than many have expected, and BP is vulnerable if the price of the black stuff slips. But the world economy looks likely to grow, which will feed demand. BP is also widely respected as one of the best-managed big UK companies, and the share price, which offers a dividend yield just above the market average, is unstretched. Sentiment towards National Grid Transco , the gas and electricity transmission company, suffered last year as power cuts struck across large parts of North America, and South London. The shares were among the worst FTSE 100 performers, falling by 11 per cent. But that has left them offering a yield of 5.2 per cent. Regulatory worries are much less than for many utilities and there is room for expansion in North America. Completing the trio of low-risk stocks is Tate & Lyle. The sugar and food ingredients business has endured torrid times in the past ten years as it and its industry were convulsed by falling prices and corporate restructurings. But Tate & Lyle is once again sailing in even-keel conditions and is finding niche markets to serve with products that carry decent profit margins. Its cashflow profile is handsome and the shares, which trade on a prospective p/e ratio of nine and forward dividend yield of 6.2 per cent, are cheap.

MmO2, the mobile telephone firm spun out of BT, is the largest of the medium-risk picks. Given its rocky recent history, and since it pays no dividend and is yet to record a bottom-line profit, it may surprise some readers to see mmO2 classed as a medium rather than high-risk selection. But the potential in mobile telephony is attractive enough, and mmO2 is now financially stable enough, to suggest investors can buy and hold the shares with relative equanimity. The stock rose 75 per cent in 2003, but £1 a share is a reasonable medium-term target; if it gets there by the end of 2004, that will a 30 per cent advance in the bag for the Tempus Ten.

Rank, the leisure group that owns the Hard Rock brand, should benefit from an easing of economic conditions and the ongoing relaxation of gaming regulations. Its Deluxe film-processing business might enjoy a bumper year as the popularity of DVDs continues to burgeon. Workspace is a property company that finds and fits out cheap and cheerful properties in non-prime locations. Its shares are quite aggressively priced. They sit at only a small discount to net asset value and give a dividend yield of 2.3 per cent. Debt gearing is also high at 100-odd per cent. But this is a small company with big ambitions and the shares should rise to match the growth in office space. Communisis is a support services concern that emerged from demerged bits of Bowater, the paper and packaging group now known as Rexam. Its shares were selected with the help of a search facility on Hemscott Guru, the stock market information database. Communisis came up trumps because it pays a 6 per cent dividend that is twice covered by earnings per share, which are set to grow more than 10 per cent in the next 12 months. In the past two years it has shifted focus to concentrate on managing the print needs of big corporations on an outsourced basis — a strategy that may earn it greater recognition in 2004.

Heading the high-risk category is Lloyds TSB, the bank. It may surprise some to see a well-heeled high-street bank classed with risk warnings on red. But while there is no tangible risk to the viability of the business, the shares could fall sharply if the company is obliged to cut its dividend. Moreover, the current dividend yield of 8.5 per cent is so high as to suggest that many in the market believe a cut is on the cards. That signal is hard to ignore, but the relatively fresh management team has shown every intention of maintaining the payout. Economic and stock market conditions should ease to provide succour for the bank’s financial position, and if confidence in the dividend grows, the shares could climb sharply.

Imagination Technologies is another of the risky picks. It designs the silicon chips that have grabbed 80 per cent of the emerging digital radio market. It also makes digital radios, under the market-leading PURE brand, although this activity is just intended to help to fire enthusiasm for the new-age radio sets. This year about 500,000 digital radios are expected to be sold in the UK, against 200,000 a year ago. Imagination should come close to breaking even in the year to March, even though at the half year it lost £3.6 million on sales that were up by 127 per cent at £13.1 million. With £6.4 million of net cash in the bank at the last count, it has no immediate financial worries.

Completing the picture is Cambridge Antibody Technology. This is a biotech company, specialising in genomics, whose shares are lolling around near five-year lows. All sorts of biotechs have fallen from favour in recent years and CAT’s woe was deepened when David Chiswell, the founder and chief executive, resigned unexpectedly in April. But this event has not, as some feared, been succeeded by anything more troubling, and under the stewardship of Peter Chambre, CAT looks set to capitalise on its past achievements.