Press & Magazine Tips for 2007

The Sunday Times December 31, 2006


Ireland: Our share selections for 2007
Sunday Times Business reporters nominate the companies that they believe will perform well in the coming year


John Waples
I am opting for BBA Aviation, the British aircraft-maintenance business. The company has just demerged Fiberweb, its specialist fabrics group. This has made it a more focused operation of the type institutional fund managers like to invest in. Since the beginning of December the shares have slipped from 290p to 274p and at this price they look much more attractive. In the long term this company is unlikely to remain independent, but in the immediate future it could make some attractive infill acquisitions, both in flight support for the commercial aviation market and in after-market services. BBA, which has operations around the world, is also the largest corporate-jet servicing business, through its Signature Flight Support subsidiary, a sector that is enjoying huge growth. The demerger of Fiberweb and the sale of its German railway-friction materials business, Becorit, have reduced net debt to below £400m. The problem is the weak dollar, which will dent profits sent back to Britain.






Brian Carey

I personally do not see an awful lot of value on the Irish stock market. There are a lot of good companies on the market, but the standout growth stocks are both highly valued and carry some measure of sectoral risk. Even the microcaps are pricey.

I like Independent News & Media on the basis of its prospective dividend yield of 4.5% and the outlook for the advertising market in Ireland once those SSIAs start hitting the shops. Indo has already cut back on its cost base, so there is a real chance to boost Irish margins even further beyond 20% in 2007.

South Africa looks to be going well and a deal at its Australian cousin APN might even yield a windfall gain. Its developing market play in India looks low cost and the potential returns are high.

On a total shareholder return basis, I think IN&M has a decent chance of outperforming the index.




Ciaran Hancock

United Drug was one of the few established Irish second-line stocks to get left behind in the 2006 rally. A consistent Iseq performer, its weakness reflected a year of transition as Liam Fitzgerald gears up for growth.

The company has posted 20 years of double-digit earnings, profit and dividend growth. It is the leading drug distributor in Ireland, with a 45% market share in the republic and 50% in Northern Ireland.

Figures for health spending suggest the market is unlikely to shrink.

Finding earnings enhancing acquisitions at the right price is the test, but the company’s track record is good. The shares are not cheap, but that reflects its market position. There is scope for the share to rise, particularly over a 24-month horizon. The only question is whether it happens in the current year. The 2006 underperformance represents a buying opportunity.




Joe Brennan

I think 2007 will see a return to quality companies with strong track records and geographically diversified earnings that will make them international leaders in their field. No Irish play ticks those boxes more than CRH. The building materials giant’s earnings have grown almost 17% annually over the past decade.

Although the stock was under the cosh during the summer as cracks started to appear in the American housing market, it has recovered well as investors began to appreciate that 70% of its business on the other side of the Atlantic is in infrastructure, which continues to be robust.

The speed with which it has disposed of unwanted parts of Ashland Paving and Construction, retrieving $215m (€163m) of the $1.3 billion it stumped up for the business in August, is impressive.

Any concerns that CRH would be badly affected in the event of an Irish property market crash are misplaced. Analysts expect Ireland contributed only 8% to group profits this year.

Continental Europe is much more important and CRH is in a great position to benefit from the nascent rebound of the Dutch and German economies. A trading statement on January 3 will set the tone for the start of the year.


Louise Armitstead

There will be even bigger mergers and acquisitions in 2007, particularly on the Continent where there will finally be recognition that many industries are fragmented, subscale and therefore must either eat or be eaten.

While companies and politicians are just cottoning on to this, private equity houses have been doing the maths and raising vast funds to spend. 3i is my share of the year: as one of London’s best-known houses, it will be at the forefront of the private equity boom. It is also a takeover target for institutions that want exposure to this bonanza.

Management may favour taking the company private, if nothing else to enable them to pay more to retain key players. Whichever option the company takes, 2007 will be an exciting year for 3i.


Jenny Davey

Shares in the Lonmin mining group have more than doubled in the past 12 months, but I reckon they still look a good bet for 2007. The world’s third-largest platinum producer should benefit from continued high platinum prices — boosted by strong demand for catalytic converters.

To add some extra sparkle, the £4.3 billion company has been cited as a possible bid target for Xstrata.




Dominic O’Connell

Investing in defence companies can be a risky business. They tend to be exposed to big government contracts. If they win them, the share price goes up. If they lose, the price drops.

I shall ignore those cautionary words with Qinetiq as my choice for 2007. The former government defence agency was privatised in 2001 and floated in February last year. Since then the shares have hardly been stellar performers — from the float price of 200p they have drifted down, finishing the year at 193p. But all that could change with the award of a big Ministry of Defence training contract later this year, and further contract wins in America. If those are not secured — as is always the risk with defence groups — there is the insurance policy that some in the City think Qinetiq could be a takeover target.




Paul Durman

Being the clear No2 in one of the world’s biggest and fastest-growing media markets — search advertising — did not prevent Yahoo! shares losing more than 40% of their value last year. The web’s most visited destination still has strong properties in Yahoo! Mail, Messenger, News and Finance. Recent additions such as Flickr, the photo-sharing site, and Yahoo! Answers have attracted millions of new users. The problem has been making money from this traffic because Google’s advertising system works much, much better. Yahoo! is cautiously rolling out its Panama advertising system. The improved results should become clearer as the year grows older. The shares are a good bet at $25.36.




Grant Ringshaw

This year I am opting for Royal Bank of Scotland. Sir Fred Goodwin, chief executive, has ruled out big acquisitions and has been hammering home the message that organic growth will drive profits. As analysts at Sanford Bernstein point out, RBS’s corporate banking business is not only booming but also well spread. Its caution on lending means bad-debt provisions are now easing — in contrast to the gloom at Barclays and HSBC — and will boost retail banking profits.

Savings and bancassurance products are driving retail banking income, and in insurance the bank is focusing on more profitable areas.

The shares, at £19.96, are trading at about 9.4 times this year’s earnings against 10.3 times for Barclays. All this makes RBS a good bet for 2007.




Matthew Goodman

Luminar, the nightclub operator, has had a tough time over the past couple of years, but a restructuring programme has just been completed and its entertainment division has been sold. That leaves Luminar doing what it does best, running nightclubs, and recent results are impressive. At its interims last month the group reported that at the dancing division sales were 12% higher than in the same period last year. The shares, at 732p, are trading at just under 13 times forecast earnings for 2008, making them cheaper than those of several sector peers, and the price is underpinned by a £140m buyback programme.




Ben Laurance

My choice for 2007 is Statpro, a company that produces software for asset managers and is quoted on the Alternative Investment Market. The group, founded in 1994, sells software to help handle portfolio analysis, risk management, compliance and the management of fixed-income investments.

Measured against likely profits for 2005, Statpro shares, currently 104p, look pricey: they trade at more than 17 times expected earnings. But, helped by the takeover in September of FRI, a Canadian provider of financial data and portfolio-management systems, Statpro’s profits should jump again in 2007. Earnings per share of 8p are within grasp for 2007, rising to 9.4p in 2008, according to Arbuthnot Securities.

The business generates a large amount of cash, money that can be used for ploughing back into research and development.