100211 p01 Cover 8/2/11 5:12 pm Page 1

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10 February 2011 BOND BLITZ: What soaring yields mean for equities – page 32
Vol 13 Issue 06

NEW BOSS
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Grafton man to
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FOOD FOR
THOUGHT
DP Poland’s
pizza plan

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100211 p03 Contents 8/2/11 4:57 pm Page 3

Contents
Inside this week...
It may be known as the ‘junior 04 Opinion
14 Cover Story market’ but there are firms Top lines are good but watch the
cost base
listed on Aim capable of
delivering giant returns to
06 Agenda
shareholders if you buy into
Buy Gulfsands on weakness
them early enough in their
earnings growth cycle. Simon 10 Plays
Keane and the Shares team
Former BSS boss to work his magic
scour the market to unearth
on Grafton
20 up-and-coming firms ready
to make it big. 14 Cover Story
Early risers

24 Small Caps
Domino’s set for Polish debut
38 Sector report: 28 Feature: UK Stock Market Awards
Food & drug Excellence deserves recognition

retailers 30 Director Deals

ARM overextended

32 Feature: Equities vs bonds

The case for equities against bonds

The Food & Drug Retail sector may face 34 Griller

Editor
Russ Mould strong headwinds in the shape of rising crop St Ives switches from creator to data
Deputy Editor prices, pricing pressure and sagging
Simon Keane
consumer confidence but history shows these 36 The Oracle
Associate Editor How to quantify risk
Alex Poole are all surmountable. Shares reveals its sector
Companies Editor picks in this special report
Dan Coatsworth 37 Mr Market
Reporters Why 2011 may be win-win for dollar
John Marshall,
Tom Sieber,
Chris Menon 34 Griller 38 Sector Report
Designer
The strong get stronger
Michael Duncan
Managing Director 42 Chartist
Mike Boydell Buy RSA Insurance
Sales Director
Richard Collins 44 Commodities
0207 378 4404
Peninsular to bounce back
Advertising Manager
Marcus Reilly
0207 378 4582 45 Forex
Senior Sales Executive
St Ives switches from creator to data $ / € – Summit confusion
Victor Georgiades
Radical changes to its end markets have undermines the euro
020 7378 4592
Corporate Subscription Sales forced the printer to acquire new skills 46 Feature: ISAs
Nathalie Frediani
020 7378 4463 A world of choice
Subscription Services
01444 475 661 50 The Honest Broker
46 Feature Investec goes positive on
Immunodiagnostic
A World of choice
The April Isa deadline is 51 Investor services directory
looming large and canny
www.abc.org.uk investors should be looking to 54 Letters
take advantage
Shares magazine (ISSN: 1468-1102) is
published weekly every Thursday (51
Please turn to p55 for this
times per year) by MSM Media Ltd, week’s companies index
Thames House, 18 Park Street, London
SE1 9ER. Company Registration No:
3733852. ISDN: 020 740 3423. Member,
Audit Bureau of Circulations Ltd. © All
Online at
Shares material is copyright. Reproduction Get all the results stories and figures, plus our Large and Mid-cap tables at
in whole or part is not permitted without
written permission from the editor.
www.sharesmagazine.co.uk/ftsetables TO SUBSCRIBE TO SHARES CALL 01444 475 661 NOW!
100211 p04 opinion 8/2/11 3:55 pm Page 4

Opinion
Rising raw material prices are crimping margin expansion in some sectors

Top lines are good but watch the

cost base
Russ Mould
n autumn 2008 (see Opinion, 30 Oct and Sainsbury (SBRY) tend to hold mar- producer Dairy Crest (DCG) and clothing

I ‘08) I used this column to highlight

how I thought a recession was a near
certainty following revelations of a
calamitous order collapse at Volvo (VOLV-
B:ST). Regrettably, this proved spot on
and equity markets took their lead from
such important microeconomic data and
tanked. Thankfully, the Swedish firm had
much better news to offer last week, not
least when management increased its
forecasts for the 2011 truck market in the
UK and USA by some 20%.
Yet some caution is required. For all the
strong progress in order intake and rev-
enues, Volvo’s final-quarter figures actual-
ly disappointed the market because the
group operating margin came in at 7.5%,
well below the 8.2% consensus. Volvo cited
raw material cost increases. This was
hardly surprising as commodity prices
have continued to go berserk but it has
still been enough for the shares to be
marked down 10% in the past month.
This helps explain why the UK’s
Industrial Engineering sector, a market
darling last year and potentially a bit of a
tired consensus pick for this, is thus far
the third worst performer of the 40 sec-
tors tracked by Shares every week in our
Sector Reports (see page 38). It has slipped
by 7.3% while the FTSE All-Share has
advanced by 1.5%.
To my mind it is too early to call time
on cyclicals in general but
the soggy performance of
the engineers and Volvo’s 80,000
margin tale are both worth
bearing in mind. At a time 70,000
of rising cost pressures it
Net global orders (units)
gins whatever raw ingredient prices do.
Intriguingly their shares have lagged the
latest crop price rally, so for the historic
correlation to be maintained, either soft
commodity prices are heading for a fall
or the grocery chains are due for a rally.
Keep on trucking
Best known for its cars, Volvo is also a
major global player in trucks and con-
struction equipment. It is therefore a
good barometer of economic and industri-
al activity. In the third quarter of 2008, itBut it is worth bearing in mind many com-
had received net orders (after cancella-
tions) for just 115 units in Europe against than, the levels seen in summer 2008
42,000 in the same period a year earlier.
The good news is last week’s fourth-quar-
ter statement from the same firm reports
global orders for 62,000 trucks, up 22%
from the July-to-September period’s
51,000. Europe alone saw orders jump
79% year-on-year to 26,014 units.
But the slower-than-expected profit
margin advance was a bit of a surprise and
Volvo joined a growing chorus of firms
bemoaning the impact of cost increases. It
is not just fellow Swedish engineers and
economic bellwethers such as ball-bearing
leader SKF (SKF-B:ST) or cutting tools
specialist Sandvik (SAND:ST) who have
felt the pinch. Back home, performance
materials firm Low & Bonar (LWB), per-
sonal goods giant Unilever (ULVR), food
Volvo truck orders 2007-2010
retailer Next (NXT) have all flagged input
cost increases as an issue. Johnson
Matthey (JMAT) last week (2 Feb) noted
how increases in rare earth oxide prices
would knock £10 million off annual prof-
its. At least this represents just 3% of the
consensus pre-tax profit forecast of £303
million for the fiscal year to March 2011,
so there is no need to press the panic
button just yet.
Evasive action
modity prices are back to, or stand higher
which prompted demand destruction as
users cut back or looked for cheaper alter-
natives. Some firms are already taking
evasive action. Back in January Toyota
(7203.T), the world’s largest seller of
hybrid cars, unveiled a new type of electric
motor that would reduce its need for mag-
nets, a move analysts say would help it cut
its dependence on rare earth metals and
lower costs. In response to soaring oil –
and therefore jet fuel – prices Delta
Airlines (DAL:NYSE) announced (7 Feb)
a cut in its capital expenditure pro-
gramme on new aircraft and the accelera-
tion of plans to phase out its 250 least fuel-
efficient planes. The net effect will be to
save $400 million and may give firms
exposed to the civil aerospace industry
something to think about.
Commodity price hikes
are therefore not a one-
way bet, at least for equity
punters. In addition to
firms with pricing power

should still pay to stick with 60,000 such as the leading brand-
luxury goods firms as their ed and luxury goods
brands give them pricing 50,000 providers, Shares remains
power. Burberry (BRBY) convinced the best plays
and Mulberry (MUL:AIM) 40,000 this year will be resource
are our preferred plays capital expansion picks
30,000
here, while chemicals sub- such as Fenner (FENR)
supplier Croda and Titan Europe
20,000
International (CRDA) is (TSW:AIM), oil firms
also well placed. We also such as BP (BP.) and
10,000
demonstrate in this week’s exporters of price infla-
Sector Report how super- tion in the form of the
0
market chains Tesco Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 commodity explorers and
2007 2008 2009 2010
(TSCO), Morrison (MRW) Source: Volvo producers themselves. ■

4 Shares | 10 February 2011

100211 p06-07 Agenda 8/2/11 5:03 pm
Agenda Tomorrow’s
Tomorrow’s news
news today
today
THE RUMOUR MILL
Ignore HMV
bid chat
lthough there are growing
A rumours of private equity
interest in HMV (HMV),
shareholders should still sell. Ben
Hunt of Oriel has indicated private
equity might pay only 20p - com-
pared to a 24.3p share price at the
time of writing. Similarly we are
sceptical Waterstone’s will be
acquired separately as funding
would be an issue. Meanwhile the
final dividend may be passed. (JM)
Shares says: Sell at 24.3p.
Losing Premier
position
ell on chat Premier Foods
S (PFD) is seeking buyers for
Hovis, the jewel in its crown,
as a means of reducing borrowings.
Such a deal following the disposal of
Quorn would significantly lower the
quality of the company’s earnings.
The group’s pricing power would
fall still further making cost recov-
ery more difficult. Anyone still hold-
ing stock should bale out now. (JM)
Shares says: Sell at 22.9p.
SABMiller to
pack a punch
ext Tuesday (15 Feb)
N Fosters (FGL:ASX) is
expected to unveil the
timetable for its divorce from
Carlton’s underperforming wine
interests and SABMiller (SAB) is
thought to be mulling a £7 billion
bid. This is well within the bever-
age giant’s financial capacity. Such
a deal would be well received by
the market as the group has had a
happy knack of successfully inte-
grating acquisitions. (JM)
Shares says: Buy SABMiller
at £20.82.
6 Shares | 10 February 2011
Page 6
Reserves update in April offers a near-term catalyst
Buy Gulfsands
on weakness
Tom Sieber
sell-off on regional unrest and
A drilling disappointments has
created a buying opportunity
in Syrian-focused oil firm
Gulfsands Petroleum (GPX:AIM).
At the time of writing the shares
440
420
400
380
GULFSANDS PETROLEUM
FTSE AIM SS OIL & GAS
Rebased to first
trade below the company’s net asset
360
340
value per share of 353p, as estimated by
broker RBC Capital Markets. Investors
320
300
should get in ahead of a likely reserves 280
upgrade in April as well as a fully-fund-
ed $100 million 2011 work programme.
Since it topped at 400p at the beginning
260
240
220
F M A M J J A S O N D J
Source: Thomson Datastream
of the year (6 Jan) Gulfsands has fallen
18% as the market has been spooked by A poor result from the highly antici-
political strife in the Arab world and poor pated Zahraa-1 well in Syria last month
well results. The £400 million market cap (7 Jan) has also been unhelpful for sen-
has exploration assets in Tunisia, the ini- timent. Fears remain unrest will spread
tial focus of the crisis. ADX Energy to that country too. At present this con-
(ADX:ASX), the Australia-listed operator cern looks largely unfounded, with little
of the Sidi Daher well onshore Tunisia in sign in Damascus of the mass protests
which Gulfsands has a 40% stake, has said that have rocked the Tunisian and
drilling will be pushed back from the Egyptian capitals.
beginning to the end of February due to Shares says: Buy Gulfsands
the instability. Petroleum at 329p.
Reports of bid activity could boost India-based oil company
Hardy buoyed by BP
Tom Sieber
nergy giant BP’s (BP.) reported interest in the D6 block, in the KG basin
E offshore India, could have a positive read-across to oil explorer Hardy Oil
& Gas (HDY). It has stakes in two neighbouring licences, D9 and D3, so
risk-tolerant investors might like to buy in to Hardy on weakness.
Shares in the £105 million market cap have given up 28.4% year-to-date follow-
ing January’s announcement of an unsuccessful result from an exploration well on
D9. Hardy has a 10% stake in both D9 and D3 which are in turn operated by Indian
conglomerate Reliance Industries (RIL:BSE). BP is reported to be in talks with
the latter about acquiring between 30% and 45% of its 90% interest in D6.
Confirmation of this deal and further clarity on terms could help to drive a
recovery in Hardy’s share price for whom an expected reserves update before the
end of next month offers a further near-term catalyst.
Shares says: Hardy is a Speculative Buy at 155p.
100211 p06-07 Agenda 8/2/11 5:03 pm Page 7

Tomorrow’s
Tomorrow’snews
newstoday
today Agenda

Latest digital camera sales figures point to earnings upgrades

Improving picture
at Vitec
Simon Keane
nvestors should buy camera accessory specialist Vitec

I (VTC) ahead of next month’s finals (3 Mar) as the fig-

ures are likely to be followed by earnings upgrades for
this year given the current strength of sales of high-end
digital cameras.
Data released last week (3 Feb) from the Camera &
Imaging Products Association (CIPA) showed shipments of
SLR cameras were up 33.9% year-on-year in December.
Although Vitec announced it would beat this year’s forecast
in a year-end trading update the following day (4 Feb), there
are likely to be more upgrades to follow.
SLR shipments hit 1.3 million in December, compared to
989,125 units in December 2009. This was the second month in
a row in which year-on-year volumes grew more than 30%, fol- Signs of a continued pick up in activity at the marketing com-
lowing November’s 32.4% advance. This suggests the recovery munications groups bode well given corporate media spend
is more than mere inventory replenishment and reflective of drives the professional photography market. We would look
genuine end demand. to final results from WPP (WPP) next month (4 Mar) for con-
While the £258.9 million cap has been a very strong per- firmation of this trend.
former in the past year, rising 49.6% to 592p, a price/earnings The staging part of this key business unit is also exposed to a
(PE) ratio of 13.8 times 2011’s consensus forecast earnings recovery in corporate events apparent at sector leaders such as
per share (EPS) of 43.1p, is not overly rich. EPS is expected United Business Media (UBM).
to progress by a further 10.6% in 2011, so the company holds Uncertainty following the surprise resignation of the
out the prospect of strong growth, which could look better finance director last week may explain why the Vitec’s shares
still in the event of any fresh estimate upgrades. are not moving but this decision appears to be based on
SLR camera accessories, such as bags and tripods, are a purely personal reasons.
major source of revenue for Vitec’s Imaging & Staging divi- Shares says: Estimate upgrades should follow accompany
sion, itself the group’s largest source of sales and profits. Vitec’s finals next month. Buy at 592p.

Group’s move from construction to engineering deserves a higher rating

forecast EPS, indicating plenty of

Renew rejuvenates its prospects
Simon Keane
ven after a 29.6% run since the
ment, leaving the rating unchanged.
potential upside.
In the year to 30 September the
Specialist Engineering arm generated
44% of the group’s £290.4 million in
sales. By 2012, when the first full-year

E announcement (2 Feb) of the

proposed acquisition of Amco,
shares in Renew (RNWH:AIM) are still
worth buying. The company’s rating
fails to properly reflect the Leeds firm’s
transformation from a construction to
an engineering-led business that this
deal foreshadows.
The purchase of Amco, which will
significantly boost the rail business of
its Specialist Engineering arm, will sat-
isfy Renew’s stated objective of gener-
ating more than half of its sales from
engineering. The £38 million cap has
only risen in line with the 33.6%
increase in earnings per share (EPS)
forecasts following the deal announce-
Debt and existing cash reserves will
fund the £26.9 million acquisition.
Ahead of the deal’s completion, con-
sensus forecast EPS for the year ending
September 2011 has increased from
7.2p to 9.6p. At 63.5p, this leaves
Renew trading on a prospective
price/earnings (PE) ratio is 6.6 times.
This looks too low for a business that
will soon be generating the vast majori-
ty of its profits from engineering.
At the time of writing the Industrial
Engineering sector trades on a PE
ratio of 13.3 times. While there
remains execution risk in the deal, we
would nevertheless expect Renew to
move closer to a multiple of ten times
contribution from Amco will be felt,
house broker Brewin Dolphin expects
53% of revenues to come from the engi-
neering operation.
The shift in sales mix toward higher-
margin business should boost the com-
pany’s overall return on sales. Operating
margins are expected to jump from 1.6%
to 2.2% between 2010 and 2011. By this
time 84% of the company’s earnings
before interest, tax and amortisation
(EBIT), excluding central costs, will be
generated by Specialist Engineering, pre-
dicts Brewin.
Shares says: Renew is worth a punt
on its successfully executing the
Amco deal. Buy at 63.5p.

Shares | 10 February 2011 7

100211 p8-9 Agenda-diary 8/2/11 4:59 pm Page 8

Agenda Tomorrow’s
Tomorrow’s news
news today
today

Biotech’s restructuring continues apace

Chart of the week Ark starts to
Corn still a tasty play heal itself
Russ Mould
ur call to buy ETFS Corn (CORN) (see Agenda, 23 Sep ‘10, 4 Nov’10) at $1.62

O
Chris Menon
has worked out nicely and generated a healthy 28% profit. But suggestions he disposal of its woundcare
China faces an ever-growing corn deficit and demand from the US ethanol
industry indicate the commodity price has further to go.
Commentary from the US Grains Council suggests China faces a deficit of ten to 15
million tonnes of corn in 2011 – the equivalent of up to nearly 600 million bushels.
American officials now believe the superpower will import nine million tonnes of the
T business for up to £2.7 mil-
lion is a major step for trou-
bled biotechnology firm Ark
Therapeutics (AKT) as it embarks
upon a recovery programme. Risk-tol-
commodity, up from prior erant investors might like to punt
Soyabeans to corn ratio
estimates of seven million. 4.0 the stock as the £10 million cap con-
China has already Historic soyabeans to corn ratio = 2.54 tinues to implement its strategic
banned industrial use of 3.5 restructuring plan.
corn but the US has stuck The sale both removes a cash drain
3.0
to its approval for the use and provides Ark with £765,000 in read-
of gasoline blends con- ies straight away. The buyer, Crawford
2.5
taining 15% ethanol for Woundcare, will pay a further £1.9 mil-
2006 to 2011 model year 2.0 lion upon the achievement of certain
cars. Rising oil prices revenue and other milestones.
2.0 the historic trigger for corn planting
also make ethanol a 1.5
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Ark had net cash pile of £13.5 mil-
tempting alternative but lion as of 30 June 2010 and in interim
this means the fuel industry is again competing with the food industry for management statement (11 Nov ‘10)
supplies, at least in America. confirmed it had sufficient funds to
Shares says: Buy ETFS Corn at $2.08. last until 2013, despite ongoing opera-
tional losses. By this time it should

Stat of the week have met the main goals announced

back in September.
Last autumn’s strategic review fol-
Tom Sieber lowed the failure in December 2009 of

$10,000
Ark’s Phase III brain cancer drug
LME-Copper, Grade A Cash U$/MT
ETFS CMOD.SECS.COPPER Cerepo to obtain regulatory approval
10.50 000'S from the European Medicines Agency.
Copper has breached the $10,000 a 10
After 12 years as chief executive offi-
9.50
tonne barrier for the first time on the cer Nigel Parker stood down and was
9
London Metal Exchange amid an replaced by former chief financial offi-
8.50
improving prognosis for the health of the cer Martyn Williams, while industry
8
global economy and signs of a widening veteran Iain Ross was brought in as
7.50
imbalance between supply and demand 7
chairman. The company made the
of the commodity. In Shares’ view these 6.50 decision to conserve what cash
will be enduring trends and investors 6 remained, dispose of non-core assets
can gain exposure to this market 5.50 and seek partners to fund the develop-
F M A M J J A S O N D J
through the exchange-traded commodity Source: Thomson Datastream ment costs of its late and early-stage
fund ETFS Copper (COPA) at $50.44. drug pipeline. Ark’s products focus on
The red metal has earned the sobriquet ‘Dr Copper’ thanks to its sensitivity to unmet medical needs within vascular
growth and status as a barometer for economic activity, particularly in China disease and cancer.
and other emerging markets. Yet the ongoing strength also reflects significant Williams confirms to Shares he is still
supply-side issues optimistic a partner can be found for
The pressure on output was highlighted last month by Freeport-McMoRan Copper one of his firm’s drugs by the end of the
& Gold (FCX:NYSE), the world’s largest listed copper miner, which indicated along- year. It addition, the company expects to
side its fourth-quarter results (20 Jan) its copper production had fallen by nearly 5% have make significant progress in its
in 2010. In the attached commentary to its own full-year numbers this week (8 Feb) efforts to win contracts for its under-
Anglo-Swiss mining giant Xstrata (XTA) noted the development of new copper utilised state-of-the-art facility genetic
projects remained ‘challenging’ thanks to labour and engineering shortages, political medicines manufacturing facility in
risk and more onerous regulation. Kuipo, Finland.
Shares says: Buy ETFS Copper (COPA) at $50.44. Shares says: Speculative Buy at 4.5p.

8 Shares | 10 February 2011

100211 p8-9 Agenda-diary 8/2/11 4:59 pm Page 9

Tomorrow’s
Tomorrow’snews
newstoday
today Agenda

Retailer may need to raise yet more cash as it struggles on

JJB to remain out of fashion

John Marshall
proposed £31.5 million placing and open offer at lion as the company battles with the need to repay credi-

A JJB Sports (JJB) is no surprise to Shares and it

would be no shock were another capital raising to
follow shortly after. Even allowing for the ‘early
stage discussions’ with rival JD Sports (JD.) we continue
to believe JJB is a lost cause and the shares should
be avoided.
Wigan-headquartered JJB issued the prospectus for its rais-
ing at 5p last week (2 Feb), just 16 months after it tapped
investors for £94 million at a price of 25p a share. Even man-
agement admits this may be no more than a short-term pal-
liative, saying even after the injection of fresh capital it
‘could experience a funding shortfall as soon as the last week
of March.’
That may well encourage existing holders to sell their
shares which could be diluted by another rights issue with-
in weeks. That follow-up deal could raise another £50 mil-
tors, close more stores and fund ongoing losses, which
David Stoddart of finnCap estimates were £50 million in
2010-11. That would leave little scope investing in the com-
pany’s remaining estate.
Although the major shareholders such as the Bill &
Melinda Gates Foundation appear willing to throw good
money after bad, JJB remains one of the weakest players on
the High Street. Shares would suspect Mike Ashley’s Sports
Direct (SPD) is salivating at the prospect of JJB closing fur-
ther stores and the prospect of more market share gains.
Nor is a bid likely to help investors get out with wallets
intact. It seems likely JD will be willing to offer no more than
a pittance as JJB’s problems look too deep seated and the
main competitor too strong.
Shares says: The future is bleak. Sell at 4.5p.
THE WRITER HOLDS SHARES IN JD SPORTS FASHION

RESULTS interim Tuesday 15 February CPI y/y

Dunelm DNLM Micro Focus MCRO RPI y/y
Company Epic
Redrow RDW Pennon PNN Core CPI y/y
Monday 14 February
Thorntons THT Wednesday 16 February BRC Retail Sales Monitor y/y
final
Friday 18 February WS Atkins ATK EU
Dialight DIA
final Thursday 17 February German Prelim GDP q/q
Fidessa FDSA
Anglo American AAL Cable and Wireless Worldwide CW. German ZEW Economic Sentiment
SVG Capital SVI
Charter International CHTR Holidaybreak HBR ZEW Economic Sentiment
interim
Rentokil Initial RTO Halma HLMA Flash GDP q/q
Reliance Infrastructure RIFS
interim Kingfisher KGF Trade Balance
Tuesday 15 February US
Go-Ahead Group GOG Sports Direct SPD
final Core Retail Sales m/m
Barclays BARC AGMS/EGMS United Drug UDG
Empire State Manufacturing Index
Domino’s Pizza DOM Friday 11 February UMECO UMC
Business Inventories m/m
Electric Word ELE Enegi Oil ENEG EX-DIVIDEND
Shaftesbury SHB Wednesday 16 February
InterContinental Hotels IHG Company Epic Divi UK
Marsh & McLennan MHM Thomas Cook TCG Wednesday 16 February Unemployment rate
Premier Foods PFD Monday 14 February Carnival CCL $0.25 BoE Gov King speaks
Quarto QRT F&C Commercial FCPT Eaga EAGA 1.21p BoE Inflation report
interim Hirco HRCO Future FUTR 0.6p US
Albermarle & Bond ABM RWS RWS Pressure Technologies PRES 4.8p Retail Sales m/m
British Land BLND Tuesday 15 February William Sinclair SNCL 3.5p Building permits
Yell YELL Centamin Egypt CEY
ECONOMICS Housing starts
Wednesday 16 February Heavitree Brewery HVT Industrial production m/m
Friday 11 February
final Southern Cross Healthcare SCHE Crude Oil Inventories
UK
Morgan Crucible MGCR Wednesday 16 February PPI Input Thursday 17 February
Millennium & Copthorne Hotels MLC Jubilant Energy JUB UK
PPI Output
interims Titon TON EU CBI Industrial Order Expectations
BHP Billiton BLT Thursday 17 February EU
German Final CPI m/m
Thorntons THT easyJet EZJ Consumer Confidence
US
Thursday 17 February LXB Retail Properties LXB Trade Balance US
final Titon TON Unemployment claims
Prelim UoM Consumer Sentiment
Anglo American AAL United Drug UDG Core CPI m/m
Prelim UoM Inflation Expectations
BAE Systems BA. CPI m/m
TRADING Monday 14 February
Ladbrokes LAD STATEMENTS Philly Fed Manufacturing Index
EU
Rathbone Brothers RAT Mortgage delinquencies
Friday 11 February German Final CPI m/m
Reed Elsevier REL Friday 18 February
Homeserve HSV Tuesday 15 February
Talvivaara Mining TALV UK
Shaftesbury SHB UK
Virgin Media VMED Retail sales m/m

Source: www. .com

Shares | 10 February 2011 9
100211 p10 plays 8/2/11 3:43 pm
Plays Key trades to make
12-MONTH PROFIT ON ALL ‘PLAYS OF THE WEEK’ TRADES: +21.7% VS. FTSE ALL-SHARE +7.1%*
Industry heavyweight hire bodes well for builders’ merchant
Former BSS boss to work his magic on Grafton
Dan Coatsworth
he appointment last week (2
T Feb) of former BSS boss Gavin
Slark as chief executive officer
(CEO) of Grafton (GFTU) is a
good reason to buy the Irish and UK
builders’ merchant. Slark transformed
BSS into a thriving plumbing and heating
Grafton
(GFTU) €3.61
Stop loss €2.90
Shares summary
Investors should follow former BSS
boss Gavin Slark and buy in to the
Irish and UK builders’ merchant.
Slark is well respected in the indus-
try and the right person to drive
Grafton forward.
Sector: Support Services
Sub-sector: Industrial Supplier
Business: Builders’ merchant, DIY
retailer, mortar manufacturer
Vital stats:
Market value: £681.2 million
Historic PE Dec 2009: 62.2
Prospective PE Dec 2010: 20.1
Prospective PE Dec 2011: 15.0
Prospective sector PE 2011: 14.5
1-month relative strength: +9.6%
1-year relative strength: +8.4%
Prospective dividend yield: 1.9%
Bid/offer spread: 0.5%
GRAFTON GROUP UTS. (LON)
FTSE ALL SHARE SUPPORT SVS £
3.80 Rebased to first
3.60
3.40
3.20
3.00
2.80
2.60
2.40
2.20
F M A M J J A S
Source: Thomson Datastream
10
Page 10
distributor before its £558 million
takeover by Travis Perkins (TPK) in
December 2010. Were Slark to once again
work his magic then Grafton should pros-
per as it emerges from a long period of dif-
ficult trading conditions.
Slark joins Grafton on 1 April to learn
the ropes before taking over on 1 July
from Michael Chadwick, who is moving
from executive to non-executive chair-
man. Chief operating officer Leo Martin is
hanging up his boots at the end of 2011.
We would not be surprised to see Slark
bring more of the BSS team on board – as
there were rumours of them all moving to
insulation specialist SIG (SHI). Slark’s
appointment last week raises speculation
part of the BSS team will instead follow
him to Grafton.
A year-end trading update by Grafton (7
Jan) shows UK sales – which make up the
bulk of its revenue – are faring well, con-
sidering the tough market for suppliers to
builders and plumbers. Second-half sales
grew by 3% to €1,020 million, even after
accounting for weather-related setbacks
in November and December which
impacted negatively on sales. That puts
full-year revenue at €2 billion compared
to €1,980 million a year earlier.
This may only seem a small achieve-
ment but profits should look good when
the £681 million cap reports results in
early March. The benefits of cost cutting
mean profits should grow by a much
faster rate than revenues. There is already
some evidence of this in the half-year
results published on 31 August 2010. Sales
fell 1.1% to €978.7 million, yet Grafton
moved from an €8.3 million operating
loss to €14.8 million operating profit. This
is because the company squeezed out a
3.4% reduction in costs.
Stockbroker NCB forecasts earnings
before interest and tax (EBIT) will grow
from €18 million in 2009 to €54 million in
O N D J
* FTSE All-Share comparative performance is from start of each Plays trade until present or when profit taken/stopped
out. The portfolio, which at the time of writing consists of 96 stocks and 63 open positions, runs on a 12-month rolling
basis. In the past 12 months, FTSE All-Share is up 17.9%. .
2010 and €85 million the year after. That
is an impressive recovery.
Grafton trades under a variety of
brands. In merchanting, it is best known
as Buildbase, Jackson and Selco. It is the
largest DIY retailer in Ireland and trades
as Woodie’s and In-House. It also owns
EuroMix, the largest manufacturer in
Britain of silo-based mortar for use in res-
idential and commercial construction
projects. Trading in EuroMix remains dif-
ficult but the Irish operations are showing
signs of improvement. At January’s trad-
ing update, it said the decline in sales for
Irish merchanting was slowing down.
Grafton is waiting for Office of Fair
Trading approval to buy nine PTS plumb-
ing stores previously owned by BSS. To aid
its takeover of BSS, Travis Perkins offered
in December 2010 to sell branches in 20
locations where the combination of the
two companies assets would hurt local
competition. Grafton is also in talks to buy
one of Travis Perkins’ own City Plumbing
Supplies branches. These are small acqui-
sitions considering Grafton already has
450 shops, but they are strategically impor-
tant in light of Slark’s appointment as they
can be used as showcases to illustrate how
BSS successfully ran its business.
Further positives for Grafton are a
strong balance sheet and healthy free
cashflow. Net debt was just €281 million
at the half-year stage. This compared to
equity of €967 million, so gearing was a
lowly 29%. Debts out to 2013 have been
refinanced and improved profit and cash
generation should have further reduced
the debt position during the second half.
There are risks in the sector’s stabili-
ty and a double-dip recession would be
bad news. Yet we see this prospect as
unlikely and therefore believe Grafton
to be a good recovery play, especially as
Slark is likely to make a positive
impression on the business.
Shares | 10 February 2011
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100211 p12 plays 8/2/11 3:40 pm Page 12

Plays Key trades to make

Gene therapy company has funds in place to support product development

Oxford Biomedica has good news in the pipeline

Chris Menon
ene therapy specialist Oxford that deal. It was not only supported

G Biomedica (OXB) has the

funds in place to progress its
very promising development
pipeline, which includes treatments for a
range of diseases, most notably cancer,
by existing institutional investors
but by a number of heavy-hitting
money managers who joined the
share register for the first time.
Gartmore (GRT) now owns 2.2%
Under the microscope:
Work at one of Oxford
Biomedica’s labs

Parkinson’s disease and opthalmological of the issued capital, Artemis 1.6%

disorders. Positive newsflow over the and Majedie Asset Management
next 12 months should take the share 1.5% respectively.
price higher. The money raised added to a
Sentiment in the stock was hit by year-end cash balance of £12
December’s heavily discounted fundraising million. It will be put to very
that saw the Oxford-based firm raise £18.4 good use and should enable the
million net of expenses. It placed 279 mil- company to meet three key
lion shares and carried out an open offer of strategic objectives.
a further 121 million shares at 5p each. First, £8.2 million has been put
Yet investors can take confidence from aside to initiate a Phase II trial for
Prosavin, Oxford Biomedica’s key
drug for a ‘one-shot’ treatment for
Oxford Biomedica Parkinsons. Positive news (22
(OXB) 5.5p Dec) on low-dose trials on humans
Stop loss 4.4p found average motor function
improvement of 26% with no seri-
Shares summary ous adverse events. Higher, optimum £2 million in additional investment. This
Developer of innovative gene-based dosage Phase I/II trials on humans started will then provide sufficient capacity for the
medicines and therapeutic vaccines. in January, with data available by mid-2011. company to produce clinical products
Sector: Pharmaceuticals and Positive results should enable Oxford using its proprietary LentiVector gene
Biotechnology Biomedica to then seek a partner to share delivery technology.
Sub-sector: Pharmaceuticals in the £50 million costs of stage II trials, Finally, Oxford Biomedica’s ocular pro-
Business: Drug development planned for the second half of 2012. Chief gramme is also progressing well. In
Vital stats: executive John Dawson explains: ‘We will December a US Phase I/II trial of
Market value: £52.5 million
need to do deals with Prosavin and in RetinoStat for age-related macular degen-
Historic PE 2010: n/a
order to do them most effectively for eration began. Results are expected by the
Prospective PE Dec 2011: n/a
shareholders we needed a strong balance first half of 2012 and if successful would
Prospective PE Dec 2012: n/a
sheet. Now we can proceed from a position see Sanofi-Aventis (SAN:PA) exercise its
Prospective sector PE Dec 2011:
of strength and structure any deal to share commercialisation option and trigger an
25.8
the costs of the trials so as to retain a terri- estimated $20 million milestone. This
1-month relative strength: +2.9%
tory, thereby obtaining a greater share of could be a blockbuster and Singer esti-
1-year relative strength: -54.4%
downstream returns.’ With any such deal mates could generate royalty and annual
Prospective dividend yield: N/a
will come upfront revenues and the manufacturing income to Oxford
Bid/offer spread: 2.6%
prospect of future milestone payments Biomedica worth £428 million by 2023.
and royalties that should be significantly Singer’s analyst Shawn Manning esti-
OXFORD BIOMEDICA earnings enhancing in the medium term. mates the investment required to bring
FTSE AIM SS HEALTH CARE House broker Singer has calculated these plans to fruition will take group pre-
14
Rebased to first
13
Prosavin could reach market by 2017 with tax losses up to £8.8 million in 2010 and
12 the potential to generate sales of £628 mil- £7.8 million in 2011, as against the £5.1
11 lion within five years of launch, and there- million deficit recorded in 2009. Yet he
10 fore annual income to Oxford Biomedica believes these losses will reduce
9 of £113 million. significantly to just £700,000 loss in 2012.
8 Second, the £52.5 million cap is estab- Providing suitable product partners
7 lishing proprietary manufacturing facili- are found Manning believes Oxford
6 ties following the purchase (31 Jan) of a Biomedica could be profitable as soon as
5
F M A M J J A S O N D J
specialist site at a cost of £1.9 million. This 2014. His 13p price target implies potential
Source: Thomson Datastream should come onstream by mid-2012 after upside of 136%.

12 Shares | 10 February 2011

100211 p13 plays updates 8/2/11 3:59 pm Page 13

Key trades to make Plays

PLAYS UPDATES
GoldStone Resources (GRL:AIM) 8.85p Gain to date: 21.2%

M
GOLDSTONE RESOURCES ining investor Obtala Resources (OBT:AIM) has revealed the acquisition of a
FTSE AIM SS BASIC RESOURCE 5.5% stake in GoldStone (GRL:AIM). A regulatory announcement (2 Feb) showed
10 Rebased to first
2 Feb – Obtala 5.5%
stake revealed
it had bought 12.3 million shares. We believe this is positive for GoldStone's share
9
price as Obtala has a history of building up substantial holdings, rather than simply buying
8
4 Oct 10 – Market 27 Jan – Shares
7
likes Akrokerri buys at 7.3p once. We remain buyers of GoldStone as Obtala's investment provides another reason why
acquisition
6
we think its shares will go up in value, alongside the exploration and permit expectations
5
underpinning our 7.3p 'buy' call (Plays, 27 Jan). An Obtala spokesperson said the company
4
likes Ghana's large gold deposits and believes Goldstone's assets in the country can be
3
drilled up quickly, thereby potentially creating value in a short space of time. Obtala made
2 282% profit from its investments in Kopane Diamonds between March 2009 and October
1 2010; and 150% from its original purchase of shares in GGG Resources (GGG:AIM) in
F M A M J J A S O N D J F
Source: Thomson Datastream September 2009 before it exited a year later after peaking at 16.2% ownership. (DC)

Electrocomponents (ECM) 269.5p Gain to date: 16.8%

ELECTROCOMP.

O
ngoing sales growth is reason to keep buying electronics and maintenance products
FTSE ALL-SHARE SUPPORT SVS
300 Rebased to first distributor Electrocomponents (ECM). The FTSE 250 firm said last week (4 Feb)
280
1 Nov 10 – Market likes
e-commerce boss hire
sales increased by 19% in the four months to 31 January 2011. It shifted from a
30 Sep 10 – Shares
country to regional focus in Europe 18 months ago and the strategy has paid off with higher
260
buys at 230.7p
sales. The UK's 11% gain was better than analyst expectations but Asia Pacific's 15%
240
growth was seen to be an underperformance. The company says the UK has benefited from
220 strong manufacturing activity while the Asia Pacific result was influenced by tough compar-
200 ative figures as Japan had such a good outcome in the first half of the year. The £1.2 billion
4 Feb – Positive
trading update cap says marketing initiatives are underway which have yet to translate into sales.
180
Electrocomponents, first highlighted at 230.7p (Shares 23 Sep '10), has gone from total
160
F M A M J J A S O N D J F dependence on the UK in 1990 to generating 70% of sales from international markets. (DC)
Source: Thomson Datastream
100211 p14-22 Cvr story 8/2/11 3:51 pm Page 14

EARLY
It may be known as the ‘junior
market’ but there are firms listed
on Aim capable of delivering

RISERS
giant returns to shareholders if
you buy into them early enough
in their earnings growth cycle.
Simon Keane and the Shares
team scour the market to
unearth 20 up-and-coming firms
ready to make it big.

14 Shares | 10 February 2011

100211 p14-22 Cvr story 8/2/11
T
he debate continues
to rage as to
whether economic
growth will be at
a premium in
2011 and beyond.
Austerity measures
and deficit-reduc-
tion plans are start-
ing to kick in, and the disappointing 0.5%
drop in fourth-quarter UK GDP hardly
helps the case of the optimists. But the
good news is when it comes to small caps
sometimes such big picture concerns sim-
ply do not matter. Even the dourest of
bears must acknowledge Aim offers
investors a chance to access some of the
world’s fastest-growing companies, many
of them offering secular growth stories
and the prospect of earnings advances
whatever the economic conditions. As one
of the most successful junior platforms in
the world, Aim provides exposure to a wide
breadth of both international and domesti-
cally-focused plays.
Shares has searched through the 800
companies that constitute the FTSE
Aim All-Share, excluding investment
companies. Our research has pinpoint-
ed 103 names forecast to expand their
earnings per share (EPS) by at least
10% this year and 10% next (see pages
16-17). From this initial list we have
then isolated our preferred 20 plays, the
names we consider to have the very
brightest growth prospects.
According to the latest forecasts from
the Office for Budget Responsibility
(OBR) the UK’s gross domestic product
(GDP) is set to expand by 2.1% this year
and 2.6% in 2012. All our picks look
primed to increase their bottom lines
well in excess of the growth in the
AIM listings vs FTSE Aim All-Share since March 2003
60 Number of IPOs
50
40
30
20
10
0 300
M AM J J A S OND J FM AM J J A S OND J F M AM J J A S OND J F M AM J J A S OND J FM AM J J A S OND J F M AM J J A S OND J F M AM J J A S OND J F M AM J J A S OND J F
2003 2004
Shares | 10 February 2011
3:51 pm Page 15
underlying economy and ride out any
further volatility as the Coalition’s
austerity plans start to bite.
Prime plays
Our hit list includes a trio of resource-relat-
ed names: South American-focused oil pro-
ducer Amerisur Resources (AMER:AIM);
gold digger Minera IRL (MIRL:AIM), due
to open a second gold mine next year; and
Titan Europe (TSW:AIM), a manufactur-
er of tyres and undercarriages for off-road
vehicles used in mining and thus a straight
play on explorers growing their capital
expenditure as they seek to expand
production and capitalise upon booming
commodity prices.
With oil smashing past $100 a barrel
and gold near multi-year highs it may not
be the biggest surprise to everyone many
Aim firms look capable of delivering supe-
rior growth, given their resources expo-
sure. But there are also some great UK-
facing businesses to be found, including
online fashion retailer ASOS (ASC:AIM)
and Majestic Wine (MJW:AIM), both of
which make our list of 20 preferred picks.
As ASOS demonstrates, success in
the UK can be used a launch pad for
international expansion in to faster-
growing overseas markets. This transi-
tion has already been successfully exe-
cuted by accessories specialist
Mulberry (MUL:AIM), another of our
key Aim selections.
We have also identified recovery sto-
ries to complement our secular growth
choices, not least as during recessions it
is often the smallest companies that get
hit the hardest. One example of this is
micro cap ClearDebt (CLEA:AIM), an
£8.3 million cap provider of Individual
Voluntary Arrangements (IVAs). It is a
2005 2006 2007
survivor of a debt advisory sector that
collapsed in 2006-07 after the High
Street banks started rejecting IVAs. As a
result the company is now in a position
to prosper. IVAs have won back trust
with the banks and look due again to
become the preferred personal insol-
vency solution, just as financial distress
among UK consumers is set to pick up.
Market in flux
Since there are 1,170 non-investment
companies on Aim we have already fil-
tered out about a third by using the
FTSE Aim All-Share index as our uni-
verse. The main benefit of focusing on
this benchmark is the companies in
it have to meet certain liquidity require-
ments to make the cut and Aim’s long
tail of infrequently traded, sometimes
impossibly illiquid counters is excluded.
By its very nature Aim is more likely to
have faster growing companies than the
Main Market as its constituents tend to
be firms at a very early stage of their life
cycle. Some may have no profits, some
even no revenues and just a fantastic
product, service or concept they are on
the cusp of commercialising. Watching
such a fledgling make its vision work,
turn it in to a gushing profits stream and
soaring share price is a truly satisfying
feeling for any investor.
Aim is designed to let such potential
flourish and its admission rules are
more flexible than those of the Main
Market. To have a quotation on the
London Stock Exchange’s (LSE) Main
Market a company first has to join the
Official List, as supervised the Financial
Services Authority’s (FSA) UK Listing
Authority. To join the Official List a
company needs to meet high minimum
1500
Number of IPOs (LHS)
FTSE Aim All-Share (RHS) 1200
900
600
2008 2009 2010 2011
P
15
100211 p14-22 Cvr story 8/2/11 3:51 pm Page 16

The fastest growing companies on Aim

Company EPIC Price Market Sector Most recent 2011 2011 2012 2012
(p) value EPS (p) forecast forecast forecast forecast
(£m) EPS (p) EPS EPS (p ) EPS
growth (%) growth (%)
Abcam ABC 336.3 607.3 Pharmaceuticals & Biotechnology 10.6 12.5 18.1 14.1 12.3
AdEPT Telecom ADT 26.0 5.5 Fixed Line Telecommunications 0.9 8.0 764.7 9.1 14.3
Advanced Medical AMS 70.8 109.5 Health Care Equipment 3.5 4.3 23.0 5.1 19.3
Solutions & Services
Adventis ATG 5.8 2.7 Media 1.4 1.8 28.6 2.3 27.8
AI Claims Solutions ACS 26.0 15.9 Travel & Leisure 3.1 4.4 39.8 5.2 19.6
AIREA AIEA 10.0 4.6 Household Goods 0.7 1.1 59.4 1.9 72.7
& Home Construction
Alkane Energy ALK 20.5 19.3 Alternative Energy 1.5 2.6 73.3 3.1 19.2
Ambrian Capital AMBR 25.0 26.7 Financial Services 1.2 2.7 128.8 3.5 31.1
Amerisur Resources AMER 22.8 207.9 Oil & Gas Producers 0.1 0.2 225.0 1.5 665.6
Amiad Filtration Systems AFS 198.5 44.7 Industrial Engineering 6.6 16.9 158.0 21.6 27.8
Arbuthnot Banking ARBB 405.0 59.2 Financial Services 22.9 30.0 31.0 38.5 28.3
ASOS ASC 1,591.0 1,127.1 General Retailers 18.7 25.9 38.7 34.4 32.8
Avingtrans AVG 53.5 13.6 Industrial Engineering 2.8 4.1 48.0 6.1 48.8
Bango BGO 147.5 55.9 Software & Computer Services 0.0 1.3 999.0 11.1 753.7
Best of the Best BEST 19.5 2.1 Travel & Leisure 2.6 2.9 14.0 3.6 21.2
BlueStar SecuTech BSST 22.3 16.2 Electronic & Electrical Equipment 4.1 4.9 19.4 5.6 14.0
Brooks Macdonald BRK 1,047.5 110.7 Financial Services 36.3 42.7 17.6 50.1 17.2
Character CCT 188.0 46.2 Leisure Goods 18.9 27.2 44.1 30.0 11.0
Charlemagne Capital CCAP 20.5 57.5 Financial Services 1.2 1.7 38.2 2.2 35.7
Christie CTG 52.0 13.1 Support Services 0.6 3.8 598.2 4.5 16.1
ClearDebt CLEA 2.7 8.3 Financial Services 0.2 0.6 252.9 0.8 33.3
ClearStream Technologies CTN 35.3 16.2 Health Care Equipment & Services 0.9 2.9 214.4 5.8 99.7
Cohort CHRT 65.5 26.7 Aerospace & Defense 7.2 9.2 29.1 10.8 17.3
CPL Resources CPS 262.3 97.6 Support Services 12.2 18.4 50.9 20.4 10.8
Craneware CRW 579.0 150.3 Software & Computer Services 14.0 15.9 13.1 20.2 27.3
CSF CSFG 71.5 114.4 Software & Computer Services 0.3 5.3 999.0 6.7 26.4
Cupid CUP 116.0 87.5 Travel & Leisure 5.2 8.6 65.4 12.3 43.0
Cyprotex CRX 4.3 9.5 Pharmaceuticals & Biotechnology 0.1 0.4 300.0 0.6 50.0
Dart DTG 84.0 119.1 Travel & Leisure 10.5 12.4 17.8 15.1 22.3
Digital Marketing DIGI 22.3 16.5 Media 2.7 3.4 29.3 6.1 78.0
Eastern Platinum ELR 99.3 901.2 Mining 0.9 2.3 166.0 7.4 219.4
Eckoh ECK 7.5 15.0 Support Services 0.2 0.4 89.6 0.6 45.9
Eco Animal Health EAH 263.5 137.7 Pharmaceuticals & Biotechnology 2.8 7.9 183.2 10.5 32.9
Elektron EKT 38.3 40.7 Electronic & Electrical Equipment 2.0 4.1 101.0 4.8 17.9
EMIS EMIS 435.0 254.7 Software & Computer Services 19.1 23.3 22.3 28.9 24.0
Empresaria EMR 66.5 29.6 Support Services 6.3 7.3 16.3 9.1 25.8
Endace EDA 415.0 62.4 Software & Computer Services 0.5 6.5 999.0 9.9 52.5
Epistem EHP 382.5 30.3 Pharmaceuticals & Biotechnology 3.3 8.5 157.6 31.4 269.4
Europa Oil & Gas EOG 28.3 32.2 Oil & Gas Producers 0.1 1.5 999.0 4.0 166.7
FfastFill FFA 9.1 36.3 Software & Computer Services 0.3 0.5 70.3 0.7 31.4
Finsbury Food FIF 23.5 12.4 Food Producers 6.2 7.3 18.9 8.3 13.7
First Derivatives FDP 460.0 73.1 Software & Computer Services 26.9 31.0 15.3 40.4 30.3
Focus Solutions FSG 139.5 46.4 Software & Computer Services 5.7 8.2 42.9 12.2 48.8
Goals Soccer Centres GOAL 125.0 60.7 Travel & Leisure 12.2 14.6 19.6 17.5 20.0
GoIndustry DoveBid GOI 127.5 12.5 Support Services 4.6 7.7 69.4 18.8 143.8
Gooch & Housego GHH 517.5 113.1 Electronic & Electrical Equipment 23.9 27.4 14.5 31.7 15.7
Group NBT NBT 427.5 110.7 Software & Computer Services 21.0 26.3 25.3 29.1 10.7
Hambledon Mining HMB 7.4 38.1 Mining 0.6 2.6 361.8 4.6 75.5
Highams Systems HSS 3.4 2.3 Support Services 0.3 0.4 21.2 0.5 25.0
Services
Highland Gold Mining HGM 175.8 571.5 Mining 16.0 22.0 37.3 24.5 11.7
Hydro International HYD 108.0 15.5 Industrial Engineering 9.2 10.7 16.3 12.3 15.0
Ideal Shopping Direct IDS 193.5 66.4 General Retailers 8.6 13.5 57.6 16.7 23.7
IDOX IDOX 15.5 52.7 Software & Computer Services 1.1 2.1 94.0 2.3 12.0
Immunodiagnostic Systems IDH 866.0 242.2 Health Care Equipment & Services 29.2 46.5 59.0 60.0 29.1
Independent Media IMD 78.5 26.9 Media 4.9 5.6 13.1 6.7 20.4
Distribution

16 Shares | 10 February 2011

100211 p14-22 Cvr story 8/2/11 3:51 pm Page 17

Company EPIC Price Market Sector Most recent 2011 2011 2012 2012
(p) value EPS (p) forecast forecast forecast forecast
(£m) EPS (p) EPS EPS (p ) EPS
growth (%) growth (%)
IndigoVision IND 505.0 38.0 Software & Computer Services 25.6 34.5 34.8 40.0 15.9
Individual Restaurant IRC 10.8 6.4 Travel & Leisure 0.6 1.2 99.1 1.5 26.3
International Greetings IGR 70.5 37.8 Media 3.8 7.3 94.1 10.4 42.5
Iomart IOM 90.5 93.8 Software & Computer Services 1.2 2.7 115.9 4.2 58.2
IQE IQE 53.5 274.5 Technology Hardware 1.3 1.7 34.2 2.1 19.2
& Equipment
K3 Business Technology KBT 193.5 49.9 Software & Computer Services 10.2 23.4 129.9 27.1 15.9
Lok’n Store LOK 125.3 32.1 Support Services 0.9 1.7 89.2 2.0 17.4
Lonrho LONR 18.3 214.3 Financial Services 0.0 0.8 999.0 2.3 184.0
Lupus Capital LUP 129.0 167.5 Construction & Materials 12.0 13.2 10.0 14.7 11.4
M&C Saatchi SAA 129.0 79.8 Media 11.3 13.8 22.7 15.2 10.0
Majestic Wine MJW 413.3 257.1 General Retailers 18.3 21.8 18.6 24.2 11.3
Mattioli Woods MTW 325.0 57.1 Financial Services 16.6 21.1 26.9 23.5 11.6
Maxima Holdings MXM 102.5 25.9 Software & Computer Services 4.6 13.9 201.4 15.3 10.0
May Gurney Integrated MAYG 255.0 179.1 Support Services 18.5 23.7 28.1 26.9 13.2
Services
Minera IR MIRL 82.0 98.1 Mining 1.2 4.3 251.9 6.5 51.3
Mulberry MUL 1,367.0 804.8 General Retailers 7.1 21.9 209.9 30.1 37.5
Nature NGR 83.0 64.4 Support Services 4.4 5.8 32.7 8.6 48.0
Netdimensions NETD 19.5 4.9 Software & Computer Services 0.7 2.1 198.6 2.8 30.2
Next Fifteen NFC 82.5 45.8 Media 6.2 8.5 36.0 9.3 10.2
Communications
Norseman Gold NGL 50.3 99.4 Mining 1.0 9.0 815.4 12.6 40.3
Northbridge Industrial NBI 219.0 33.5 Industrial Engineering 23.7 26.3 10.9 30.0 14.0
Services
OMG OMG 37.5 25.9 Software & Computer Services 0.5 3.8 701.7 5.0 33.5
OPG Power Ventures OPG 104.0 298.5 Electricity 0.3 2.6 712.5 5.1 96.2
Pan African Resources PAF 10.5 151.6 Mining 1.1 1.5 40.0 2.1 39.5
Personal Group Holdings PGH 272.5 81.9 Nonlife Insurance 22.3 24.8 11.1 28.9 16.7
Pilat Media Global PGB 50.3 29.8 Software & Computer Services 2.4 4.0 66.7 4.6 15.0
Playtech PTEC 384.0 931.6 Software & Computer Services 32.0 36.3 13.3 40.6 11.8
Plexus POS 58.0 46.5 Oil Equipment; Services 0.9 1.5 68.5 2.5 66.7
& Distribution
Polar Capital POLR 143.0 108.4 Financial Services 3.0 7.6 156.1 10.4 37.2
Prezzo PRZ 55.3 125.0 Travel & Leisure 4.1 4.6 13.6 5.2 11.6
PROACTIS PHD 38.5 12.0 Software & Computer Services 3.1 3.5 12.2 4.0 14.3
PureCircle PURE 160.0 247.0 Food Producers 0.8 2.1 171.9 7.9 275.2
Silverdell SID 11.0 16.7 Support Services 0.5 1.5 212.5 1.9 26.7
Skywest Airlines SKYW 30.5 60.9 Travel & Leisure 2.3 3.1 37.8 4.9 58.1
smartFOCUS Group STF 15.8 15.0 Software & Computer Services 0.6 0.8 33.3 1.3 62.5
Somero Enterprises SOM 24.0 13.5 Industrial Engineering 1.0 2.1 110.0 3.1 47.6
Songbird Estates SBD 140.0 1070.9 Real Estate Investment 2.8 3.8 36.4 7.0 84.3
& Services
SQS Software Quality SQS 224.5 62.6 Software & Computer Services 18.5 23.6 28.0 26.4 11.6
Systems
Tasty TAST 26.5 12.7 Travel & Leisure 0.2 0.7 235.6 1.6 123.4
Tikit TIK 250.0 36.8 Software & Computer Services 17.0 22.7 33.5 25.8 13.7
Titan Europe TSW 86.5 71.8 Industrial Engineering 2.1 11.0 421.0 17.8 62.2
Tricorn TCN 17.3 5.5 Industrial Engineering 0.5 1.7 277.8 2.4 41.2
Turbotec Products TRBO 30.5 3.9 Industrial Engineering 3.3 4.3 30.6 7.4 71.6
Ultimate Finance UFG 15.8 7.8 Financial Services 1.7 1.9 14.5 2.7 42.1
Walker Greenbank WGB 53.0 30.8 Household Goods & 2.3 6.3 175.7 7.1 12.0
Home Construction
Workplace Systems WSI 15.8 23.2 Software & Computer Services 0.0 0.2 566.7 0.9 350.0
International
YouGov YOU 49.5 47.9 Media 2.2 3.4 55.1 3.9 13.0
All companies have forecast earnings per share (EPS) growth of 10% this year and 10% next year
For companies with December year ends this year’s EPS growth is based on consensus projection for 2009’s EPS, yet to be reported, and
2010’s forecast EPS
Names selected out of the 800 FTSE Aim All-Share companies, excluding Equity Investment Instruments and Nonequity Investment Instruments
Source: ShareScope
P

Shares | 10 February 2011 17

100211 p14-22 Cvr story 8/2/11 3:51 pm
hurdles in terms of trading track record,
and adhere to very high disclosure stan-
dards once listed, as set out in detail in
the FSA Handbook.
In contrast, Aim follows an ‘exchange-
regulated’ model where the supervision
is carried out by the market’s operator,
the LSE. The benefit of this approach is
entrepreneurial companies offering
higher potential returns that might not
make the cut for the Official List find
their way onto Aim.
Those investors worried about
whether this light regulatory touch on
Aim will have the same disastrous
results as it did in the investment bank-
ing industry at the end of the last
decade can take encouragement from
several initiatives to tighten the rules.
In response to a couple of unfortunate
scandals, most notably that involving
cash shell Langbar in 2005, and swinge-
ing criticism from rival exchanges and
regulatory bodies, new Aim listing regu-
lations have been introduced. The LSE
clamped down on cash shells and via
Rule 26 enforced improvements in
transparency. Introduced in February
2007, this insists all Aim firms have a
website which provides a thorough
overview of the company’s operations,
management team, financials and cor-
porate advisors, as well as full disclosure
of regulatory announcements made on
the LSE.
Yet for all of the improved share-
holder protection, Aim punters do
need to be aware of the risks involved.
After all, any small cap which does not
generate a profit, or in some cases
even sales, could easily turn turtle, if
its product, service or concept goes
wrong, proves unworkable or is simply
trumped by a new rival. In such cases,
any cash reserves will be quickly
exhausted by operating losses and the
struggling firm either taps you for
more cash via a rights issue or simply
folds up as its share price collapses.
Et-China.com is a good example of
the greater risks associated with Aim.
Its listing was suspended by the LSE in
July after the company failed to pro-
vide investors with audited annual
accounts. Its quotation was then can-
celled altogether last month (4 Jan).
But the flip side of the delistings,
whether due to poor disclosure, fraud
in the case of Langbar or a headlong
fall into administration, is simply that
18
Page 18
Aim typically attracts more flotations
than the Main Market.
Initial Public Offerings (IPOs) on
Aim picked up quite sharply in the last
two months of 2010. Nine businesses
came to market in November and ten
in December (see chart on page 15),
compared to two and seven respective-
ly on the Main Market. For the whole
of 2010 47 companies floated on the
Main Market and 29 listed on Aim,
excluding investment trusts. A
healthy Aim market should be a good
sign for the overall UK economy.
Banks may be reluctant to lend but in
2010 over £6.8 billion was raised on
Aim in total, as firms raised cash to
help them invest, grow and take on
more staff.
Healthy competition
Aim Tokyo and Aim Italia have been set
up to export the successful Aim model,
although rival exchange groups, includ-
ing US technology bourse operator
NASDAQ, are trying to give Aim a run
for its money. After a horrible share
price plunge on Aim, technology play
OCZ Technology (OCZ:NASDAQ) last
year forged a successful move to NAS-
DAQ Capital Markets. OCZ’s claim it
has been able to raise capital in the US
it could not on London’s junior market
may be why mobile marketing and
advertising technology provider Velti
(VEL:AIM) has followed it to the US,
opting for a quote on the NASDAQ
Global Select Market.
Greece-based Velti, which began trad-
ing in the US last month (28 Jan)
under the mnemonic ‘VELT’, is set to
leave Aim by 30 April. While competi-
tors may be chipping away at the edges
of Aim the bigger picture is that it has
been, and remains, one of the most
successful junior markets in the world
and a rich hunting ground for investors
with an appetite for risk.
With our thorough screening exer-
cise Shares has sifted out the winners
from the wannabes and the future
stars from the never-will-bes, to help
risk-tolerant investors back the cream
of the UK-listed small cap crop.
• Thinking of putting your Aim
stocks in an Individual Savings
Account? Ordinarily this is not
allowed but next week we explain
how some of the junior market’s
companies are eligible.
Advanced Medical
Solutions
(AMS:AIM) 70.8p
Market value: £109.5 million
This year’s EPS growth: 23%
Next year’s EPS growth: 19.3%
Medical technology company
Advanced Medical Solutions
(AMS:AIM) revealed in its pre-close
update (15 Dec 10) continued progress
since its interims, with full-year fig-
ures likely to come in at the top-end
of market expectations. Sales of its
LiquiBand products in the US are
doing particularly well. Consensus
estimates call for during pre-tax prof-
its during the full year ending 31
December 2010 of £5.1 million or 3.5p
in earnings per share. Pre-tax profits
are forecast to rise 25% to £6.4 million
for EPS of 4.3p in 2011. It is also like-
ly there will be upgrades following
results in March. (CM)
ADVANCED MED.SLTN.GP.
FTSE AIM SS HEALTH CARE
80 Rebased to first
75
70
65
60
55
50
45
40
35
30
F M A M J J A S O N D J
Source: Thomson Datastream
Amerisur Resources
(AMER:AIM) 22.8p
Market value: £207.9 million
This year’s EPS growth: 225%
Next year’s EPS growth: 665.6%
The South American-focused company
is targeting a near ten-fold ramp up in
output from 570 barrels of oil per day
(bopd) to more than 5,000 bopd by the
final quarter of this year. In order to
achieve this ambitious aim the group is
drilling six development wells on its
Platanillo field onshore Colombia.
Results before the end of next month
from an independent audit of both its
Colombian fields, Platanillo and Fenix,
offer a more immediate catalyst. Adding
to its appeal, Amerisur (AMER:AIM) is
the operator on all of its projects with a
Shares | 10 February 2011
100211 p14-22 Cvr story 8/2/11
100% stake, allowing it to dictate the
pace of activity and enjoy all of the
upside from its success. (TS)
ASOS
(ASC:AIM) £15.91
Market value: £1.1 billion
This year’s EPS growth: 38.7%
Next year’s EPS growth: 32.8%
Online fashion specialist ASOS
(ASC:AIM), a longstanding Shares
favourite, has enjoyed dramatic suc-
cess. But this may be only the begin-
ning as the company seeks to replicate
its UK success internationally. Overseas
sales represent 44% of group turnover
and with sites in France, Germany and
the United States they should soon
overtake the UK. In the longer term the
company has ambitions to have a China
site too. Best Seller of Denmark has a
20% stake which could become the
springboard for a bid. Although the rat-
ing is demanding, with the company
sporting a price/earnings ratio of 61.4
based on this year’s forecast 25.9p
earnings per share, this is justified by
the group’s past success and future
prospects. (JM)
ASOS
FTSE AIM SS RETAIL
1800 Rebased to first
1600
1400
1200
1000
800
600
400
F M A M J J A S
Source: Thomson Datastream
Brooks Macdonald
(BRK:AIM) £10.48
Market value: £110.7 million
This year’s EPS growth: 17.6%
Next year’s EPS growth: 17.2%
Fund manager Brooks Macdonald’s
(BRK:AIM) discretionary model is tap-
ping a rich seam based on fee-based
financial advice. This business
approach is winning out against com-
mission-driven fund sales that are set
to suffer with next year’s introduction
of the Financial Services Authority’s
Retail Distribution Review. Investors
Shares | 10 February 2011
3:51 pm Page 19
should not be concerned Brooks’
owner-managers have sold stock, even
though seven directors, led by chief
executive officer Chris Macdonald,
pitched out a collective £2.2 million
worth of shares following September’s
finals. We view this as a positive.
These disposals found willing institu-
tional buyers and awareness of the
£111 million cap’s growth potential
continues to rise. As per last month’s
(28 Jan) half-year trading update the
company has a track record of surpris-
ing on the upside. (SK)
Character
(CCT:AIM) 188p
Market value: £46.2 million
This year’s EPS growth: 44.1%
Next year’s EPS growth: 11.0%
The toy and games designer had a fan-
tastic Christmas as its ZhuZhu pets
range continued to be a top seller. The
outlook looks even better with three
major product launches in 2011 to sup-
port future sales. Earnings per share
growth of 44% in the year to 31 August
2011 and 11% in the following year will
be driven by micro figures that will be
launched this spring, beginning with
Doctor Who characters. This year will
also see the UK debut of Squinkies,
already a massive hit in the US, and
new Bob the Builder toys to support a
new TV series. (DC)
CHARACTER GROUP
FTSE AIM SS PERS & H/H GDS
200 Rebased to first
180
160
O N D J
140
120
100
80
F M A M J J A S
Source: Thomson Datastream
Charlemagne Capital
(CCAP:AIM) 20.5p
Market value: £57.5 million
This year’s EPS growth: 38.2%
Next year’s EPS growth: 35.7%
Weakness following Egyptian political
unrest and concerns about emerging
markets represents a buying opportuni-
ty. The £57.5 million cap emerging mar-
kets fund manager remained profitable
through the two very tricky years of
2008 and 2009, even though assets
under management (AUM) went from
$6.5 billion at 31 December 2007 to $3.5
billion in the year just ended. We do not
believe the Middle Eastern situation will
dampen business levels and expect
them to increase. Charlemagne
(CCAP:AIM) is so lean any rise in fund
inflows will quickly drop through to the
bottom line and drive up earnings per
share (EPS) from a low base. Forecasts
are for EPS to almost double by the end
of 2012 to 2.2p from 2010’s expected
1.2p. This does not look not unrealistic
given the scale of the fund flows that
are still heading East. (SK)
ClearDebt
(CLEA:AIM) 2.7p
Market value: £8.3 million
This year’s EPS growth: 252.9%
Next year’s EPS growth: 33.3%
Much like its larger Individual
Voluntary Arrangement (IVA) rival
Fairpoint (FRP:AIM) this is a recovery
story but once you look past this year’s
expected 252.9% rebound in earnings
per share (EPS) there is a sustainable
growth story with EPS due to step up
33.3% in 2011 to 0.8p. The IVA sector,
after its formulation of an understand-
ing with the High Street banks, is set for
a rejuvenation as personal insolvencies
begin to creep up. It is an industry from
which a huge amount of capacity has
been removed following the collapse of
many competitors. Relatively larger
players, including £8.3 million cap
ClearDebt (CLEA:AIM), will benefit
from consolidation as the Government
takes a hard line on smaller operators
as evidenced by Office of Fair Trading
activity in revoking licences. (SK)
O N D J
CLEARDEBT GROUP
FTSE AIM SS FINANCIAL SVS
3.00 Rebased to first
2.80
2.60
2.40
2.20
2.00
1.80
1.60
1.40
F M A M J J A S O N D J
Source: Thomson Datastream
P
19
100211 p14-22 Cvr story 8/2/11
ClearStream
Technologies
(CTN:AIM) 35.3p
Market value: £16.2 million
This year’s EPS growth: 214.4%
Next year’s EPS growth: 99.7%
Irish medical device manufacturer
ClearStream Technologies (CTN:
AIM) is a profitable growth company.
Despite investments in manufacturing
process improvements, which should
enhance margins and increase produc-
tion capacity, its shares lie near year
lows. There is growing demand for its
range of catheters and stents. House
broker finnCap forecasts sales of €19.5
million for the year ending 31 July 2011
producing pre-tax profits of €1.3 mil-
lion, with revenues rising to €25 mil-
lion with pre-tax profits of €3.8 million
in 2012. Consensus estimates are for
earnings per share to leap 214% to 2.9p
this year, rising 99.7% to 5.8p in 2012.
With a healthy combination of cash
and revenue growth the shares look
very attractive. (CM)
Cyprotex
(CRX:AIM) 4.3p
Market value: £9.5 million
This year’s EPS growth: 300%
Next year’s EPS growth: 50%
A provider of pre-clinical services to
the pharmaceutical industry, Cyprotex
(CRX:AIM) is a profitable and cash
generative business. It offers clients the
chance to significantly reduce the fail-
ure rate of new products. In a
December trading update the £9.5 mil-
lion cap reported good growth and the
consensus expectation for the full-year
ending 31 December 2011 is it will
deliver earnings per share of 0.4p for a
300% increase over the consensus
CYPROTEX
FTSE AIM SS HEALTH CARE
6.50 Rebased to first
6.00
5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
F M A M J J A S
Source: Thomson Datastream
20
3:51 pm Page 20
figure of 0.1p for 2010. In the pharma-
ceutical world it is a medium-risk play
that offers plenty of upside and house
broker Singer Capital Markets has a
target price of 12p. (CM)
Epistem
(EHP:AIM) 382.5p
Market value: £30.3 million
This year’s EPS growth: 157.6%
Next year’s EPS growth: 269.4%
Biotech Epistem (EHP:AIM) has a
diversified business providing pre-clini-
cal contract research for world-leading
drug companies. This in turn gener-
ates the cash to fund the development
of its Novel Therapies and
Personalised Medicine divisions, both
of which have exciting growth
prospects. Later this year it is due to
launch its Genedrive ‘iPad’ style diag-
nostic device, which will diagnose dis-
eases from swabs and urine samples
within 30 minutes. Epistem reported a
maiden £350,000 pre-tax profit for the
year ending 31 July 2010 on revenues
of £5.7 million, producing earnings per
share (EPS) of 3.8p. This year house
broker Peel Hunt expects the company
to generate adjusted EPS of 8.5p, ris-
ing 269% to 31.4p in 2012. (CM)
GoIndustry-DoveBid
(GOI:AIM) 127.5p
Market value: £12.5 million
This year’s EPS growth: 69.4%
Next year’s EPS growth: 143.8%
The auctioneer is a late-cycle recovery
play. Large companies have learned
from the recession they cannot afford
to waste money, so they are looking to
sell unused assets or redeploy them to
different parts of their business.
GoIndustry (GOI:AIM) assists with
both these processes which is why it
GOINDUSTRY-DOVEBID
FTSE AIM SS INDS GDS & SVS
180 Rebased to first
160
140
120
100
80
60
40
O N D J F M A M J J A S
Source: Thomson Datastream
has such attractive forecast earnings
growth. Having restructured its own
business over the past year or so,
GoIndustry is now busy helping others
to streamline or make more efficient
their operations. We see significant
upside potential in the shares as
demand increases for auction or
advisory services. (DC)
Hydro International
(HYD:AIM) 108p
Market value: £15.5 million
This year’s EPS growth: 16.3%
Next year’s EPS growth: 15%
The company, which provides out-
sourced products to treat waste water
and flood water, offers a cheap way of
playing increased focus on these two
issues in the medium term. Based on
a share price of 108p and an earnings
per share forecast for this year of
10.7p the shares trade on an unde-
manding 2011 price/earnings ratio of
10.1. The company derived around
93% of its revenues from the UK and
US in 2009. In the former the water
utilities started a new five-year invest-
ment programme in April 2010 which
will see expenditure increase by
around 50% on the previous cycle to
more than $25 billion. (TS)
Ideal Shopping Direct
(IDS:AIM) 193.5p
Market value: £66.4 million
This year’s EPS growth: 57.6%
Next year’s EPS growth: 23.7%
The specialist home TV shopping
company lost its way briefly in 2007
and 2008 but the appointment of
Mike Hancox as chief executive offi-
cer in October 2008 has revitalised it.
Hancox, who has considerable
experience of home shopping, has
IDEAL SHOPPING DIRECT
FTSE AIM SS RETAIL
320 Rebased to first
300
280
260
240
220
200
180
160
140
120
O N D J F M A M J J A S O N D J
Source: Thomson Datastream
Shares | 10 February 2011
100211 p14-22 Cvr story 8/2/11 3:51 pm Page 21

concentrated upon niche sectors such
as gardening and craft. The latest
trading update (14 Jan) was encour-
aging with underlying sales in the
year ending January up 16.4%. The
company is a beneficiary of the
increased popularity of the internet,
which accounts for an increasing pro-
portion of sales. Last July it institut-
ed a ‘strategic review’ , which may
yet result in a bid. (JM)
THE WRITER HOLDS SHARES IN THIS COMPANY
THE WRITER HOLDS SHARES IN THIS COMPANY
but plans to grow to at least 250 by
accelerating its opening programme to Minera IRL
a minimum of 10 a year. The company (MIRL:AIM) 82p
has developed a successful niche in the Market value: £98.1 million
marketplace with a growing emphasis This year’s EPS growth: 251.9%
on fine wines. The reduction in the Next year’s EPS growth: 51.3%
minimum order to six bottles has The South American miner is beat-
attracted new customers. At 413.3p ing gold production targets at its
and, based on forecast earnings per Corihuarmi mine and thereby pro-
share of 21.3p this year, the viding additional funds to advance
price/earnings ratio of 19 is rich but its exploration projects. The forecast
justified by the growth prospects. (JM) earnings growth will be driven solely
by Corihuarmi until late 2012 when

Majestic Wine MAJESTIC WINE

(MJW:AIM) 413.3p FTSE AIM SS RETAIL
550 Rebased to first
Market value: £257.1 million
500
This year’s EPS growth: 18.6%
Next year’s EPS growth: 11.3% 450
Wine seller Majestic Wine 400
(MJW:AIM) has enjoyed a stellar 350
record with sales rising by 18% to £233
300
million between 2008 and 2010. The
group should continue to generate 250
strong growth over the next four to five 200
F M A M J J
years. The company has 161 UK stores
its second mine, Don Nicolas, should
start production. This should be fol-
lowed by Ollachea as the third mine
from 2014, coinciding with the
depletion of Corihuarmi. Earnings
are being supported by a strong gold
price and low operating costs.
Minera (MIRL:AIM) is a well-run
business with ambitious manage-
ment that is building up a pipeline
of projects to keep the company
growing. (DC)
A S O N D J
Source: Thomson Datastream

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Mulberry is an opportunity for Nature to offer

(MUL:AIM) £13.67
Market value: £804.8 million
This year’s EPS growth: 209.9%
Next year’s EPS growth: 37.5%
Mulberry (MUL:AIM) has been
remarkably successful issuing three
profit upgrades this financial year. Its
success is based upon the seemingly
inexhaustible demand for luxury
products. The latest trading update
(21 Jan) confirmed own-store sales
were up by 66% over Christmas. The
group is mining the worldwide inter-
est in luxury goods by opening stores
in the Middle East and Asia as well
as in cities such as New York and
Paris. Margins are growing helped by
improved operational gearing from
its increased volume and the rising
importance of full-retail-price sales.
Although the rating is demanding –
the price/earnings ratio is 62.4 times
this year’s forecast 21.9 pence earn-
ings per share - this is justified by the
record and the potential for further
dramatic growth. (JM)
MULBERRY GROUP
FTSE AIM SS RETAIL
1400 Rebased to first
1200
1000
800
600
400
200
0
F M A M J J A S
Source: Thomson Datastream
the full service. Tighter environmental
laws are driving the overall market as
ships or offshore workers have to dis-
pose of their waste properly. (DC)
NATURE GROUP
FTSE AIM SS INDS GDS & SVS
90 Rebased to first
80
70
60
50
40
30
20
F M A M J J A S
Source: Thomson Datastream
Polar Capital
(POLR:AIM) 143p
Market value: £108.4 million
This year’s EPS growth: 156.1%
Next year’s EPS growth: 37.2%
Fledgling fund manager Polar
Capital (POLR:AIM) has built up a
good track record running both long
and short funds in a number of spe-
cialist areas including technology,
healthcare and, following last
September’s acquisition of HIM
Capital, financials. Consequently it
continues to attract strong inflows.
Earnings per share (EPS) are forecast
to expand by 251.5% from 2010’s
expected 3.0p to 2012’s 10.4p. Even
these numbers could prove conserva-
tive as the £108 million cap has a
O N D J
track record of surprising on the
upside. Last month’s (14 Jan) year-
end trading update was a case in
Titan Europe
(TSW:AIM) 86.5p
Market value: £71.8 million
This year’s EPS growth: 421%
Next year’s EPS growth: 62.2%
The tyre and undercarriage maker and
running Play of the Week (see Shares,
22 Jul) should be a beneficiary of a
strengthening global recovery and
increased demand for natural
resources – be that metals or food-
stuffs. Thanks to swift action to
address costs in the economic down-
turn Titan is heavily geared to both
these trends and this should drive sig-
nificant earnings growth going for-
O N D J
ward. The group is often subject to bid
rumours as Titan International
(TWI:NYSE), which sells tyres and
large wheels into the US market, has a
22.9% stake. Analysts see the two
companies as a natural fit given their
competencies and exposures. (TS)
Tricorn
(TCN:AIM) 17.3p
Market value: £5.5 million
This year’s EPS growth: 277.8%
Next year’s EPS growth: 41.2%
Earnings growth at the pipe manipula-
tion specialist is likely to be driven by
its Energy and Transportation business
segments as they benefit from an
accelerating industrial recovery. The
group’s results for the six months to 30
September 2010 revealed a 329% rise
in pre-tax profits to £450,000 (6 Dec)
and the group indicated its full-year
numbers for the year ending 31 March,
due to be announced on 6 June, would
be ahead of consensus. The company

Nature point. Assets under management

(AUM) ended the year at $3.5 billion,
has kept a tight rein on costs and as a
result is heavily geared to recovery,
(NGR:AIM) 83p higher than the market had been meaning it could outperform even
Market value: £64.4 million expecting. (SK) enhanced expectations. (TS) ■
This year’s EPS growth: 32.7%
Next year’s EPS growth: 48% POLAR CAPITAL HOLDINGS TRICORN GROUP
FTSE AIM SS FINANCIAL SVS FTSE AIM SS INDS GDS & SVS
The waste water treatment group is 150 Rebased to first 18 Rebased to first
regularly featured in Shares as it ticks
140
all the boxes when it comes to earn- 16

ings growth. The acquisition of rival 130

14
European business ISD in December 120

2010 will help to double earnings for 12

110
the enlarged group in the next two 10
100
years. Nature (NGR:AIM) gets access
to parts of Europe where it does not 90
8

currently have a presence. ISD col- 80 6

F M A M J J A S O N D J F M A M J J A S O N D J
lects, but does not treat, waste so there Source: Thomson Datastream Source: Thomson Datastream

22 Shares | 10 February 2011

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roller_shares_mag.indd 1 05/11/2010 10:27:34

100211 p24-25 SC 8/2/11 10:21 am Page 24

Small caps Profit from future stars

EDITED BY TOM SIEBER

The doors are about to open on the fast food success story’s newest country

Domino’s set for Polish debut

Dan Coatsworth
uy DP Poland (DPP:AIM) at Investors piled into DP Poland in the death. The company has subsequently

B 57.7p ahead of its opening the

first Domino’s Pizza store in
Poland at the end of this
month. This should be the catalyst to
trigger a recovery in the stock which
hope the management would repeat its
business success.

Shares believes to be oversold follow-
ing the death of chairman Richard
Worthington in October 2010.
The company has the master franchise
for Domino’s Pizza in Poland and will
make its debut in Warsaw, expected to
happen in late February. It joined Aim on
28 July 2010, led by Worthington and
executive director Peter Shaw – both of
whom built up Coffeeheaven into a suc-
cessful coffee chain in Central and
Eastern Europe (predominantly Poland),
prior to its acquisition by Whitbread
(WTB) for £36 million in February 2010.
DP POLAND
FTSE AIM SS TRAVEL & LEIS £
appointed Shaw as chief executive officer
and financier-to-leisure expert Nick
Donaldson as chairman.
Poland is seen as an ideal market in
which to launch Domino’s Pizza, as there
74 Rebased to first
is growing demand for consumption of
72
70
pre-prepared foods, including takeaways
68 and home delivery restaurant food. In its
66 initiation of coverage note on DP Poland
64 in June 2010, stockbroker Seymour
62
Pierce calculated the Polish pizza market
60
to be worth £143 million, potentially ris-
58
ing to £346 million within ten years. This
56
54
implies 9% compound annual growth.
AUG SEP OCT NOV DEC JAN Shares says: Overlooked since the
Source: Thomson Datastream
chairman’s death, the maiden store
Having listed at 50p, DP Poland hit a opening should reignite the share price.
peak of 73.5p in September 2010, only to Buy. C
lose all of its gains upon Worthington’s THE WRITER HOLDS SHARES IN WHITBREAD

London commercial property group occupancy yet to reach key level million is up for renewal with
Royal Bank of Scotland (RBS) in
Workspace making slow progress 2012. Workspace would therefore be
negatively impacted were interest
rates to rise.
Chris Menon The company, whose properties are

P
roperty play Workspace (WKP:
AIM) should be sold as progress
towards increasing occupancy
to a level that will deliver meaningful
rental growth remains slow.
The provider of space to small and
medium-sized businesses last week (2
Feb) produced a muted interim man-
agement statement for the period from
1 October 2010 to 2 February. Overall
occupancy advanced 1.2% in the quar-
ter to 84.4%, with like-for like occu-
pancy (that is properties whose use
was not changing) up 0.9% to 86.6%.
Rents rose by 0.5%.
This is well above the low point in
overall occupancy in March 2008 of a
shade under 83% but below a level,
estimated at 90%, whereby meaningful
rent increases can be made to stick. In
addition, the company is carrying
£383 million in debt, of which £150
located in London, is trying to realise
value by way of refurbishments and
changes of use. But such work will be
costly and the benefits will take some
time to come through. Workspace has
also gone to the market to raise funds
twice in the past two years and only
an optimist would bet against it hav-
ing to do so in the future.
Shares says: There is better value
elsewhere. Sell at 25p.

24 Shares | 10 February 2011

100211 p24-25 SC 8/2/11 10:21 am Page 25

Profit from future stars Small caps

Travel group is ready for Canadian expansion and a new stab at the UK

Canadian boost for Travelzest

Dan Coatsworth
rowing propensity among year earlier. This was caused by a £12.2 sales of European holidays to Canadians

G Canadians to travel is reason

to buy holiday provider
Travelzest (TVZ:AIM). It
owns the country’s largest online travel
company, itravel2000, which continues
million one-off impairment charge
against the UK operations. This draws a
line under historical issues relating to
the previous management paying too
much for acquisitions against the level
and develop cruise offerings.
UK website operations
relaunched in November 2010 under the
were

Travelzest name as the single brand for

to be the driving force behind the
group’s earnings and the reason why
takeover rumours surround Travelzest.
TUI Travel (TT.) is seen to be the most
likely predator.
We believe the market misunderstood
last week’s (2 Feb) full-year results as the
shares fell 3.3% to 14.5p on the day.
Travelzest reported a £9.9 million pre-tax
loss against a £42,000 trading deficit a
of earnings growth they could possibly
achieve. Underlying pre-tax profit actual-
ly increased by 11% to £6.1 million.
Chief executive officer Jonathan
Carroll says the Canadian holiday mar-
ket is performing ‘exceptionally well’ as
the country enjoys a strong economy,
currency and consumer confidence.
Travelzest plans to expand its coverage
of the regional Canadian market, push
marketing to consumers so it could
cross-sell its multiple subsidiary brands.
It previously turned away business if a
person wanted a destination not served
by the brand they had contacted. The
benefits should begin to feed through to
earnings later in the year.
Shares says: With or without a
takeover, Travelzest looks to be
a good play in the travel sector.
Buy at 14.5p.

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100211 p26 SC 8/2/11 10:35 am Page 26
Small caps Profit from future stars
EDITED BY TOM SIEBER
With funding in place investors can look to exploration potential
Placing faith in Aminex
Tom Sieber
hares in Aminex (AEX:AIM) are
S worth buying after the oil explor-
er’s announcement of a £26 mil-
lion fundraising (2 Feb) and
increase in its stake in the Nyuni block,
offshore Tanzania, (4 Feb) ahead of a
potentially high-impact drilling campaign.
The company is planning exploration
wells on Nyuni, in which its interest
now stands at 65%, and its Ruvuma
licence onshore Tanzania. It also
intends to drill two development wells
on its Shoats Creek field in Louisiana.
TV production company set to beat market forecasts
DQ to provide prime-time results
Simon Keane
B
uy Indian production company
DQ Entertainment (DQ:AIM) as
its 75%-owned Indian subsidiary
could beat full-year revenue forecasts.
This is based on comments in a trading
update (4 Feb) from Bombay Stock
Exchange-quoted DQ Entertainment
International (DQE:BSE) which
expects to full-year sales to grow by
17% to 22%
this year.
At an exchange rate of INR 73.4 to
26
The Nyuni well will be drilled first, in
April, and followed by a well in the
third quarter of the year on Ruvuma,
which is operated by the company’s
much larger peer and running Shares
Tip for 2011 (see Cover, 23 Dec) Tullow
Oil (TLW). The cash will also be used to
carry out seismic surveys aimed at
identifying further exploration targets
offshore Tanzania and to accelerate the
development of its Kiliwani North gas
field in the country in order to
commence production by 2012.
the pound, that equates to revenues for
the year ending 31 March of between
£28 million and £29.2 million versus
consensus of £27.7 million sales. While
we are not bulls of the rupee at present
(see Forex, 3 Feb), potential downside
here is more than adequately priced in.
The bigger picture is a rating anomaly
has opened up between the business
and its larger rival Eros International
(EROS:AIM) which could reverse.
Both the DQ parent company and
AMINEX (LON)
FTSE AIM SS OIL & GAS £
20 Rebased to first
18
16
14
12
10
6
F M A M J J A S O N D J
Source: Thomson Datastream
Of the money being raised, the group
is looking to get £20 million through a
placing and a further £6 million
through an open offer. The placing is
heavily dilutive, representing around
55% of its share capital, and existing
shareholders should take up their
rights in the open offer which entitle
them to buy one new share for every six
shares held.
Shares says: The dilution is justified
by the work programme. Buy
at 9.1p.
Eros are trading on forward
price/earnings ratios of about 10
times next year’s earnings per share
(EPS) forecast. We believe DQ, fore-
cast to increase EPS by 42% next year
from 9.6p to 2012’s 13.7p, deserves a
higher rating. In comparison, Eros is
predicted to expand EPS by 9.8% from
21.2p to 23.3p.
The fourth-quarter is significant for
DQ in terms of revenues so the market
may be waiting for confirmation of
trading for this key period. The com-
missioning of a second series of the
Jungle Book animation adds confidence
trading should be at least in line.
Shares says: Buy ahead of
full-year numbers potentially
beating expectations.
Shares | 10 February 2011
100211 p27 SC plus 8/2/11 10:32 am Page 27

Profit from future stars Small caps

FOCUS ON PLUS
Top five risers %
Adriatic Oil (ADOP:PLUS) 60.0
Wessex Exploration (WX.P:PLUS) 43.0
Wheelsure (WHLP:PLUS) 37.8
Metroelectric (METP:PLUS) 33.3
Valiant Investments (VALP:PLUS) 33.3

Bottom five fallers %

Oracle Coalfields (ORCP:PLUS) -13.6 Specialty pharma play seeks to diversify its portfolio
One Media Publishing (OMPP:PLUS)
Daily Internet (DAIP:PLUS)
-16.7
-18.4 Plethora Solutions to
Captive Audience Display (CAD:PLUS)
Consolidated Africa Mining (CAMP:PLUS)
-20.0
-25.0
deliver on time
Chris Menon
Source: Shares, Thomson Reuters Datastream. Weekly s specialty pharmaceutical company Plethora Solutions
change in closing mid price to Feb 4 2011.

Exploration well could lift explorer

A (PLE:AIM) prepares to deliver additional revenues from
its pipeline of late-stage drugs risk-tolerant investors
might like to take a speculative punt on the stock at 7.9p.
Plethora used 2010 to develop a urology business intended to
start delivering meaningful sales this year. This should comple-
From Wessex to ment its existing product portfolio, which includes one drug for
premature ejaculation that is awaiting final regulatory submission

Guyane following successful stage III trials.

Delayed satisfaction is something existing Plethora share-
holders unfortunately know plenty about. In 2009 it produced
Tom Sieber revenues of £17.7 million with pre-tax profits of £9.4 million.

R
isk-tolerant investors could consider playing
momentum in oil explorer Wessex
Exploration (WX.P:PLUS), up 43%, as its
partner Tullow Oil (TLW) gears up to drill a well off
the coast of Guyane in South America.
Wessex has a modest 1.25% stake in the Guyane
block but the target, the Zaedyus prospect on which
drilling will commence this quarter, could contain as
much as 700 million barrels of oil or equivalent
(boe). A successful discovery would still be material
for the £10 million market cap.
The company is also preparing an independent
audit of all of its assets ahead of a mooted move to
Aim before the end of March. This could provide a
further catalyst for the share price.
Elsewhere, electric vehicle play Metroelectric
(METP:PLUS) gained 33.3% ahead of share placing (4
Feb) which raised £80,000 for working capital purposes.
Shares says: Wessex is a Speculative Buy
at 5.1p.
Visit www.plusquoted.com
That performance was boosted by revenues from a deal with
Shionogi Pharma for the sale of all US rights to its PSD502 drug
to prevent premature ejaculation and the licensing of rights to
the rest of the world. Revenues have subsequently dropped.
Independent broker finnCap forecasts sales slipped to just £1.2
million in 2010, producing a £1 million loss.
This shortfall should only be temporary while Plethora waits for
regulatory approval for PSD502. Clearance should be followed by
further milestone payments and a percentage of the royalties from
gross sales outside the US. Approval should be in place within a
year and chief financial officer Ronald Openshaw tells Shares:
‘When it does, we’re confident that even on a conservative sales
estimates we could obtain £10 million in annual royalties from this
drug with no further costs.’
Meanwhile the new unit, called The Urology Company, has a
portfolio of 11 urology products Plethora is distributing in the UK.
This should help diversify its revenue streams away from lumpy
milestone payments and potential royalties. FinnCap believes
group revenues will rally 75% to £2.1 million in 2011, while losses
should come down to £600,000.
With several other late stage drugs for which it is seeking part-
ners the £4.4 million cap could perform strongly over a two-to-three
year horizon, with sustainable profits possible by around 2012-13.
Shares says: A Speculative Buy at 7.9p for the
growth potential.

Shares | 10 February 2011 27

100211 p28-29 Stock market 8/2/11 10:42 am Page 28

UK Stock Market Awards

Excellence deserves
Nominations now open for the

UK MARKET
AWARDS 2011
STOCK

S
hares is proud to announce the first UK Stock Market Awards. The awards will be
supported by all of the publications and financial information service providers
which form the MSM Media Group, including not just Shares and its sister web-
site www.moneyam.com but also www.stockmarketwire.com, www.directorsholdings.com,
www.brokerforecasts.com, www.plusquoted.com and www.simplychart.com. The awards
will celebrate all that is great about publicly listed British firms and the equity market
within which they choose to operate.
The UK Stock Market Awards will also seek to answer the biggest question of all –
which companies are actively riding the wave and which are simply being swept along
by the surf ? They will identify the firms that are implementing a carefully considered
strategy to properly balance risk with return and create shareholder value. Now is your
chance to have a say, by nominating candidates across all 25 categories. A vastly experi-
enced panel of equity market participants and commentators will then sift your initial
ideas down to the individual winners.

To nominate a company please visit:

www.stockmarketawards.com
The judging process
What will we be looking for?
The panel will be looking for evidence of:
• Effective innovation
• Commercial success
• Financial soundness
• Clarity of strategy
• Effective implementation of that
strategy
• Management acumen
Ideally the winners’ shares will have
performed consistently well during the
year although acquisitions, disposals,
restructuring programmes, fund
raisings and the launch of innovative
product and service offerings can
all be given special recognition –
especially if a firm’s share price has
responded favourably.
The panel
The panel will be chaired by Russ Mould,
editor of Shares Magazine, who previous-
ly worked for 12 years at investment
bank UBS as an equity analyst covering
the technology sector. Russ took the role
of lead analyst on several initial public
offerings and reached the level of
managing director in 2003, becoming
head of UBS’ global semiconductor
research effort. He joined Shares in 2005
as technology correspondent and was
appointed editor in July 2008.
The full panel will include individuals
with experience of the fund management
and broking industries, who work as
company advisors, accountants and
lawyers as well as individuals with direct
experience of running PLC companies.

28 Shares | 10 February 2011

100211 p28-29 Stock market 8/2/11 10:42 am Page 29

UK Stock Market Awards

recognition
A
fter a huge rally from March 2009’s lows, the FTSE 100 been slimmed down and balance
has reached the 6,000 level once more. Macroeconomic sheets’ cash piles replenished. The
data remains volatile from month to month and con- first UK Stock Market Awards will
cerns regarding inflation and whether it will force interest rate recognise those firms and execu-
increases in the West to match those already seen in markets tives who are doing the most to
as far afield as Australia, South Korea, China, Israel and Brazil grab the opportunities on offer to
have yet to play out. But what is clear is that after two years of advance their profits and
restructuring and adaptation to a tougher environment, corpo- strategic positioning.
rations are back on the front foot once more. Cost bases have Merger and acquisition activi-
ty continues apace, while initial
public offerings (IPOs) also con-
AWARDS CATEGORIES tinue to reward investor atten-
Our awards will be sector based using the industry tion. In 2010, 89 firms went
standard ‘Super Sectors’. This will ensure that public on the London Stock Exchange and raised over
£10 billion between them, compared to 22 deals and £1.5 bil-
comparisons of performance, management
lion the year before. This rejuvenation of the IPO market
challenges and sector conditions will be more should continue in 2011, both on the Main Market and Aim,
meaningful and provide realistic and direct compar- and reaffirm London’s position as the place to list.
ison for companies against their peers, rather than The UK’s fourth-quarter economic wobble, when gross
just the market’s highest-performing sector. domestic product actually fell 0.5% quarter-on-quarter, is a
timely reminder no firm is in for an easy ride at any time. But
1 Best Oil & Gas PLC the UK Stock Market Awards will give due recognition to
2 Best Chemicals PLC those companies which are rising to the challenge and reward-
ing their shareholders with capital appreciation and also
3 Best Basic Resources PLC
potentially increased dividend payments.
4 Best Construction & Materials PLC
5 Best Industrial Goods & Services PLC
6 Best Automobiles & Parts PLC AWARDS TIMINGS
27 Jan – Open for nomination
7 Best Food & Beverage PLC
21 Feb – Closing date for nominations
8 Best Personal & Household Goods PLC 04 Mar – Judging panel meet to vote on the nominations
9 Best Health Care PLC 31 Mar – Awards held at prestigious London venue
10 Best Retail PLC
11 Best Media PLC
12 Best Travel & Leisure PLC FURTHER INFORMATION
13 Best Telecommunications PLC To nominate a company in these awards please visit
14 Best Utilities PLC www.stockmarketawards.com
To discuss sponsorship or any other involvement in
15 Best Banks PLC
the awards please contact Richard Collins on
16 Best Insurance PLC 0207 378 4404 or rcollins@msm.co.uk
17 Best Real Estate PLC
18 Best Financial Services PLC
19 Best Technology PLC In partnership with
20 Best Investor Relations Communications
21 Best Advisor – Corporate Sponsor
22 Best Advisor – Legal
23 CFO of the Year
24 CEO of the Year The Quoted
25 Deal of the Year Companies Alliance

Shares | 10 February 2011 29

100211 p30 DDs 8/2/11 10:10 am Page 30

Director deals Key trades at the top

EDITED BY SIMON KEANE

Follow director sales after shares rally Finance chief buys following full year results The Trade
almost 20% in a week Buyer: Simon Dingemans
Follow director
ARM Glaxo purchase
Consideration: £472,000
Number of shares bought: 40,000
Subsequent holding: 40,000 (0.0008%)
overextended Chris Menon
costs, notably those related to its con-
troversial diabetes drug Avandia. The

F
Simon Keane ollow the move of product has been removed from
echnology investors might like to GlaxoSmithKline (GSK) chief Europe after claims it increased the

T take the hint and follow the lead

of ARM (ARM) chief executive
officer (CEO) Warren East who
last week (3 Feb) sold £1.7 million worth of
stock, disposing of 290,000 shares at
574.7p. At 604p the microprocessor archi-
tecture designer looks extremely fully val-
ued, irrespective of its technological
prowess and long-term growth prospects.
It is often risky to take on such a
momentum play and ARM’s shares stand
187% higher than they did a year ago. Yet
financial officer designate Simon
Dingemans who purchased 40,000
shares in the global pharmaceutical
behemoth (4 Feb). He bought at £11.80
a share in a deal valued at £472,000.
risk of heart attacks.
The payments should draw a line
under its legal liabilities for Avandia.
The company is successfully diversify-
ing in to the consumer health market,
His purchase took place the day which should lessen the impact from
after GlaxoSmithKline announced its the issue of patent expiry that affects
full-year results for 2010. Pre-tax most of the big pharma companies.
profits were 60% down on the previ- Shares says: Follow the director’s
ous year, hit by £4 billion in legal lead. Buy.
TOP BUYS SOURCE:

we also note chief financial officer Tim Company Director Position Date Price Amount Value Holding Current
(p) (£) (No. of shares) price (p)
GlaxoSmithKline Simon Dingemans CFO 04/02/11 1,180.0 40,000 472,000 40,000 1,184.0
The Trade Gulfsands Petroleum
De La Rue
Andrew West
Nicholas Brookes
CH
CH
03/02/11
31/01/11
319.0
670.0
100,000
29,628
319,000
198,508
100,000
37,408
319.0
693.0
Seller: Warren East, chief executive officer Jelf Grahame Stott NED 01/02/11 65.0 250,000 162,500 250,000 65.5
Consideration: £1,666,601 Gulfsands Petroleum David Cowan NED 03/02/11 310.0 50,000 155,000 491,750 319.0
National Grid John Parker CH 02/02/11 549.5 20,000 109,894 134,712 554.5
Number of shares sold: 290,000 SABMiller John Manser NED 02/02/11 2,083.8 5,000 104,191 5,000 2,086.5
Subsequent holding: 714,279 (0.05%) De La Rue Tim Cobbold CEO 31/01/11 670.0 14,813 99,247 14,813 693.0
De La Rue Colin Child FD 31/01/11 670.0 14,813 99,247 14,813 693.0
easyJet Chris Kennedy FD 04/02/11 385.0 6,490 24,987 12,631 396.2
Score’s disposal of £1.1 million worth of
stock. His decision to part with 197,250 OPTIONS EXERCISED
shares at 581.5p, reducing his holding by Company Director Position Date Price Amount Value Holding Current
(p) (£) (No. of shares) price (p)
70% to 86,053, adds to our conviction levels Gulfsands Petroleum Andrew West CH 03/02/11 129.0 200,000 258,000 200,000 319.0
about the Cambridge firm’s valuation. Gulfsands Petroleum David Cowan NED 03/02/11 146.0 125,000 182,500 566,750 319.0
Porvair Ben Stocks CEO 02/02/11 98.0 150,000 147,000 153,185 123.5
The share sales came on the heels of Porvair Christopher Tyler FD 02/02/11 98.0 100,000 98,000 139,000 123.5
Eurasia Mining Gary Fitzgerald NED 02/02/11 1.0 6,491,308 64,913 15,326,994 1.5
very strong fourth-quarter numbers (1 Porvair Christopher Tyler FD 02/02/11 101.5 60,000 60,900 199,000 123.5
Feb) which prompted a 17.1% one-week Eurasia Mining Michael Martineau CH 02/02/11 1.0 5,567,600 55,676 12,618,025 1.5
Whitbread Christopher Rogers FD 01/02/11 1,734.6 2,129 36,930 47,976 1,758.0
climb from 516p. The £7.8 billion cap Whitbread Patrick Dempsey ED 01/02/11 1,734.6 2,129 36,930 24,957 1,758.0
Eurasia Mining Christian Schaffalitzky MD 02/02/11 1.0 3,000,000 30,000 15,911,168 1.5
reported its highest ever group order
backlog as of 31 December, up 75% on TOP SELLS
Company Director Position Date Price Amount Value Holding Current
the previous year. (p) (£) (No. of shares) price (p)
While the figures prompted across-the- ARM Warren East CEO 03/02/11 574.7 290,000 1,666,601 714,279 607.5
board earnings upgrades investors must ARM Tim Score CFO 03/02/11 581.5 197,250 1,147,009 86,053 607.5
ARM Tudor Brown ED 03/02/11 580.1 189,860 1,101,397 736,045 607.5
now ask themselves whether the technolo- Andor Technology Chris Calling ED 02/02/11 460.0 100,000 460,000 172,750 463.0
gy play has too rich a rating. ARM trades Experian David Tyler NED 31/01/11 772.5 50,000 386,250 345,455 790.0
Noventa Erik Kohn CH 04/02/11 12.8 1,000,000 128,037 5,441,629 12.8
on a price/earnings (PE) ratio of 57.5 based Imperial Innovations Susan Searle CEO 31/01/11 350.0 24,012 84,042 67,800 435.0
Imperial Innovations Julian Smith FD 31/01/11 350.0 18,860 66,010 39,219 435.0
this year’s consensus earnings per share Kiotech International Richard Scragg ED 03/02/11 84.0 50,000 42,000 238,588 86.5
Imperial Innovations Martin Knight CH 31/01/11 350.0 8,348 29,218 100,640 435.0
(EPS) estimate of 10.5p.
This looks very full even though, EPS TOP SELLS POST EXERCISE
growth of 11% is expected for 2011 and Company Director Position Date Price Amount Value Holding Current
(p) (£) (No. of shares) price (p)
20% for 2012, with the prospect of more Gulfsands Petroleum Andrew West CH 03/02/11 310.0 200,000 620,000 0 319.0
to come as margins are driven higher by Gulfsands Petroleum David Cowan NED 03/02/11 307.0 125,000 383,750 441,750 319.0
Porvair Christopher Tyler FD 02/02/11 123.0 145,500 178,965 53,500 123.5
increased royalty rates. The firm may Porvair Ben Stocks CEO 02/02/11 123.0 135,500 166,665 117,685 123.5
City of London Investment Douglas Allison FD 02/02/11 440.0 10,000 44,000 414,375 446.8
also penetrate new markets. Back in ARM Tudor Brown ED 03/02/11 577.5 2,091 12,076 925,905 607.5
January Microsoft (MSFT:NASDAQ) ALL DATA ALSO AVAILABLE AT
CEO Steve Ballmer announced his firm’s WWW.SHARESMAGAZINE.CO.UK/SHARESDIRECTORDEALS
Windows 8 operating system for desktop Highlighted companies are featured in stories in this week’s magazine
computers would be designed to incorpo- CD commercial director CS company secretary MKD marketing director
rate ARM’s intellectual property. CEO chief executive officer D director NECH non-executive chairman
CED chief executive of division DCH deputy chairman NED non-executive director
Shares says: ARM is a great company CFO chief financial officer ECH executive ch OD operations director
KEY

but a lot of good news now appears CH chairman ED executive director SD sales director
COO chief operating officer FD finance director SEC secretary
discounted. Sell.

30 Shares | 10 February 2011

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100211 p32-33 Feature.qxd 8/2/11 11:02 am
Feature: Equities vs bonds
Historic comparison of the yield on shares and gilts offers further encouragement to bulls of the market
The case for equities against bonds
Tom Sieber
n Shares’ opinion, a 30-year bull run
I in government bonds has started to
unwind. Even so our analysis, as
evidenced by the chart below, sug-
gests they still look significantly overval-
ued on the basis of both their long-term
average yield and historic relationship
with equities. As gilts are progressively
sold off we would expect there to be
meaningful rotation into stocks.
Investors can take advantage and gain
easy broad-brush exposure to the UK
market through buying a tracking prod-
uct such as db-x trackers’ FTSE All
Share ETF (XASX) at 318p or a tracker
fund such as Fidelity Moneybuilder UK .
UK BENCHMARK 10 YEAR DS GOVT. INDEX - INTEREST YIELD
FTSE ALL-SHARE - DIVIDEND YIELD
16
14
12
10
0
1981 1983
32
Page 32
Rising gilt yields
The yield on the ten-year UK
Government bond – or gilt - began to tick
up in the final quarter of last year. It has
since dribbled up from 3.5% at the end of
September to 3.79% at the time of writ-
ing. This compares with an average pay-
out over the last three decades of 7.8%
and a yield on the All Share of 3.8%. It is
worth bearing in mind our chart only
shows the market’s historic yield. Based
on consensus estimates the prospective
dividend yield on the FTSE All-Share is
much higher at 3.5%.
Just twice in the last 30 years has the
(historic) yield on the All-Share out-
19 Oct '87 – Black Monday
1985 1987 1989
weighed or traded within very close prox-
imity to that of the ten-year gilt. This
either signalled that we were going back to
a 1930s-type scenario with savage dividend
cuts and deflation, that bonds were sub-
stantially overvalued or that equities were
significantly undervalued relative to gov-
ernment debt. On both occasions Shares
put forward the bull case for equities. We
first did this with our Cover story Bull vs
Bear in spring 2009 (see Shares, 26 Mar
‘09) and then we returned to the subject in
spring last year following the significant
correction caused by the Greek economic
crisis, with our study entitled Go against
the flow (see Cover, 13 May ‘10).
1991 1993 1995
Shares | 10 February 2011
 100211 p32-33 Feature.qxd 8/2/11 11:02 am
Punchy profits
Since the first piece the FTSE All-
Share has soared 57% from 1,984.2 to
3,109.5 and since the second it has
chalked up a 10.1% gain, in a clear val-
idation of our approach.
The inevitable result of such stellar
gains is the ten-year bond yield has
moved some way ahead of that of the
FTSE All Share, since equity yields
decline as prices rise, just as is the case
for bonds. Yet the level of divergence still
looks very small on a historical basis. In
February 1981, at around the time the
multi-decade bond rally began, the yield
on the UK ten- year gilt, at 13.2%, was
seven hundred basis points (7.0%) ahead
of the yield on the All-Share. As recently
as February 2001 the gap stood at 320
basis points.
Equity upside
At the time of writing, ten-year gilts
yield just 90 basis points, or 0.9%, more
3 Apr '00 – US federal
court declares Microsoft a
monopoly as 'dot-com'
boom unwinds
1995 1997 1999
Shares | 10 February 2011
Page 33
than the historic equity yield and just
29 basis points, or 0.29% than the
prospective dividend yield available
from the benchmark index.
Were the differential to return to its
position of ten years ago, assuming a
static bond yield and no increases in
company dividends, it would imply a
move of 418% in the FTSE All-Share’s
to 16,027.4. Such a scenario is clearly
unrealistic, not least as the UK equity
market back in 2001 was still gripped
by the technology bubble, which rash-
ly threw conventional valuation tech-
niques such as this out of the window.
It may therefore not be the most sen-
sible benchmark for comparison.
Yet even a return to the average pre-
mium over the last ten years, of 130
basis points, would suggest a 17%
upward move in the FTSE All-Share to
3,606.2 – and that assumes the unlikely
prospect of dividend payouts staying
flat at a time when corporate profits
2001 2003 2005
Feature: Equities vs bonds
and cash flows are booming and balance
sheets cash rich. This does suggest UK
equities remain good value, relative to
government bonds, even after the rally
from the March 2009 lows.
Bond downside
Beyond the historical evidence, there
are three main reasons why we would
expect the blowout in bonds to contin-
ue. First, almost every potential pur-
chaser of bonds is already in the mar-
ket – fund flows indicated how they
were the consensus call in 2010.
Second, sovereign debt liabilities are
now so large there must be some doubt
about some nations’ ability to pay back
their debts. Finally, a loose monetary
policy in the developed world is likely
to boost inflation, further reducing the
attractiveness of fixed-income assets
as an investment as rising prices
reduce the value of the coupon – or
yield – on offer in real terms. ■
13 May '10 – Shares
flags stock market
retreat on debt
crisis in Greece as
buying opportunity
26 Mar '09 –
Shares says
buy the
market
2007 2009
Source: Thomson Datastream
33
100211 Griller p34-35 8/2/11 10:39 am
The Griller BIG interviews with the people who count
Radical changes to its end markets have forced the printer to acquire new skills
St Ives switches from creator to data
Dan Coatsworth
ollowing a buying spree in the
F
mid-1980s St Ives (SIV) became
one of the biggest names in UK
commercial printing. Today it is
one of the few legacy figures left in a
print industry fighting to stay alive.
Given the surprise £12 million acquisi-
tion in June 2010 of marketing services
business Occam, I ask chief executive
officer (CEO) Patrick Martell if St Ives
has no choice but to enter a market in
which it has no experience because sev-
eral parts of its existing business are,
arguably, in near-terminal decline.
‘Yes, that is one reason, but there is
logic behind buying Occam,’ says Martell.
He says there are close links between the
two businesses: Occam builds databases
so companies can tailor their marketing
messages to the correct target market. St
Ives prints the marketing literature
which is sent to these people.
I argue this is still a bold leap for St
Ives, since it has no skills in database
management. ‘That is why we’ve gone
into the market through an acquisition
and thus bought the skills,’ says the
CEO, defensively.
If it is such a logical fit, I ask the CEO
why such an acquisition has not been
done before. ‘I suppose the impetus to do
it was new management including a new
CEO and the change in economic cli-
mate,’ he replies. ‘We are good at the exe-
cution of marketing services so it is not so
much of a leap for us.’
New broom
Martell became CEO in April 2009 after
a management reshuffle which saw his
predecessor Brian Edwards and com-
mercial products managing director
Simon Ward leave the company. This
was a difficult period for St Ives, charac-
terised by a severe profit warning and
job cuts across the business.
The company closed down several pro-
duction plants and sold its US and Dutch
operations. ‘When we were talking to
investors, they weren’t talking about
strategy, they were talking about survival,’
admits Martell. ‘We took out units which
didn’t, or would soon not, generate cash.’
He says the company’s focus was on cash
34
Page 34
St Ives’ chief executive officer Patrick Martell (left)
not profit and the strategy appears to
have worked. St Ives has subsequently
paid down a lot of debt. It also claims its
businesses are now running more effi-
ciently while the cash keeps coming in.
On the day that I meet Martell and
finance director Matt Armitage, rumours
circulate there is a new round of redun-
dancies coming at the company, this time
focused on the books division. I put it to
the pair the business is clearly not out of
the woods yet if it is having to further cut
costs. ‘It is true that we are cutting jobs in
the books business but these are only a
small number of voluntary redundancies,’
replies the CEO. ‘There are parts of that
operation which are now automated so we
need fewer people.’
Armitage says the company will con-
tinue to look at ways of trimming costs
including further staff reductions in
businesses that have seasonality, as
they can be ‘manned up and down’
when necessary.
Price pressure
St Ives’ trading update (30 Nov ‘10)
implied the rate of decline in sales was
slowing. Nonetheless, I put it to Martell
he is working in what remains a difficult
market. Talk in the publishing industry
is printing prices continue to fall as
capacity outweighs demand. Companies
including St Ives have spent millions of
pounds on machines they cannot afford
to leave sitting idle. ‘The price pressure
remains very severe,’ he admits. ‘Sales
and finance director Matt Armitage
have been hit by lower prices and some
structural changes yet we are combat-
ting those two challenges by bringing in
business. We have seen our efforts to
win new business in the last six months
reverse what was an overall decline in
revenue.’
St Ives says it cannot stand firm on
pricing as this could see it lose business
to rivals – as witnessed in March 2010
when its lost a contract for printing
IPC’s magazines to a rival which under-
cut on price. ‘The issue with magazine
printing is that capacity exists in expen-
sive, well-built, long-lasting machines –
against a backdrop of relatively easy
finance which has seen these assets refi-
nanced through various cycles, so the
assets have lived longer than contribu-
tion in that period should allow them to
do. At some point those assets will need
to be replaced but most (printing compa-
nies) aren’t generating sufficient cash to
reinvest or even survive.’
Martell insists St Ives’ assets are in
good shape and it continues to generate
lots of cash to support the business. ‘If you
have all that money invested into capital,
the short-term argument is to keep print-
ing, even if it is not going to make you a
profit. It just needs to contribute towards
costs. That is the view many printers have
taken which is why printing prices in the
market continue to go down.’ But what
about longer term, why would St Ives want
to operate in a potentially zero-margin
environment? Martell believes the com-
Shares | 10 February 2011
100211 Griller p34-35 8/2/11 10:39 am
pany will not be producing volume-driv-
en magazines that are sold on the news-
stand. Instead, he sees a future in print-
ing magazines that have more targeted
content to their readers, including tai-
lored advertising based on knowledge of
who is buying the product such as
through subscription details.
Big deals
The aforementioned IPC contract loss
made a 3% hole in annual group revenue.
While St Ives was able to stomach this
hit, a far worse pain could be felt if Royal
Mail decided not to renew an outsourc-
ing contract with St Ives due to expire in
October this year. Armitage says it is cur-
rently worth £30 million per year to St
Ives, equal to 8% of the £375.7 million
forecast group revenue for the year to
July 2011. Given the impending privati-
sation of Royal Mail and chatter it may
have to sell some of its most profitable
divisions to qualify for state help with its
pension scheme, surely it will not renew
such a large contract until there is clari-
ty over restructuring plans? ‘It is too
early to speculate,’ replies Armitage.
Out of St Ives’ six divisions, four are
profitable. Of the other two, the maga-
zines arm is loss-making and the direct
response and commercial division
comes in around break-even. The latter
includes the Royal Mail outsourcing busi-
ness and two other subsidiaries which
are treading a fine line. The first is a
music and multimedia business which is
suffering from the decline in CD sales as
it prints the booklets that accompany
physical music products. The second,
Westerham Press, business prints finan-
cial reports and accounts. These docu-
ments came under threat after account-
ing watchdog the Financial Reporting
Council last month (7 Jan) proposed
reports should be posted on a company’s
website rather than produced in print.
‘We have seen financial reports decline
in last few years,’ reveals Martell, ‘but we
have also seen number of pages go up.
Some companies are even spending
more money to make it almost a piece of
marketing literature.’
Armitage insists the music and
accounts printing businesses are only a
small part of St Ives and any further
decline in sales can be addressed. ‘They
are currently generating profit and cash.
If they don’t do that, we will have to take
action – sell or close them.’
Shares | 10 February 2011
Page 35
BIG interviews with the people who count The Griller
Cost cuts
The exhibitions and events division did THE
not used to be profitable but it turned in
a small profit in the last financial year. INVESTMENT CASE
The £99 million cap is now seeking
acquisition opportunities as it reckons St Ives
there will be an increase in business (SIV) 95p
around the 2012 Olympics and other
major sporting events in the near Summary
future, together with a general market The recession forced the printer to cut
recovery. It has invested in new print- costs and focus on cash, not profit, genera-
ing equipment which at £1 million a pop tion. The strategy is working and St Ives is
was considerably cheaper than £10 mil- now expanding into new markets
lion for a magazine printer. That goes Bull case
some way to explain why St Ives’ capital • Good record of surviving hard times
expenditure is now pegged at £12 mil- • Strong cash generation
lion per year versus £25 million to £30 • Return to profit growth
million historically. Bear case
Full-year results (5 Oct ‘10) showed the • Margins hurt by falling print prices
benefits of cost cutting and improved • Acquisitions outside of St Ives’ core skills
working capital management could have • Royal Mail contract loss risk
on a business. The company went from a
pre-tax loss of £7.2 million in the year to
31 July 2009 to a pre-tax profit of £8.1 mil- The story in numbers...
lion a year later. Revenue actually dipped
by 6.3% to £362.3 million but costs REVENUE
declined by 9% to £283.3 million. 2010 2009
‘We have stabilised sales, taken costs Media £147.2m £154.5m
out and maximised cash,’ says Armitage.
Commercial £214.7m £232.3m
‘We have leveraged our position in the
Total £361.9m £386.8m
market, both in terms of buying efficient-
ly, as suppliers do not see us as a credit
risk, and working capital management. UNDERLYING OPERATING PROFIT
We have had some success pulling pay- 2010 2009
ments in and we have pushed out our Media £13.6m £12.3m
credit with suppliers over the last few
Commercial £2.4m -£2.2m
years from 40 to 100 days and we are now
pushing to 120 days.’ The finance direc- Total £16.0m £10.1m
tor adds: ‘Our cash conversion rate is Source: St Ives
100% to 200% and we are running capex
significantly below depreciation because
we are well invested.’ Vital stats
Although a recovery in top line sales Market value: £98.5 million
growth is still to be achieved, St Ives is on Prospective PE July 2011: 8.6
the right track. While there could be fur- Prospective dividend yield: n/a
ther bumps along the way, the South
London-headquartered firm has a good ST.IVES
track record of surviving difficult times FTSE ALL SHARE SUPPORT SVS
and adapting to changing market condi- 120 Rebased to first
tions. While its new focus of marketing 110
services may seem a stretch too far – and
100
further acquisitions are planned includ-
90
ing field marketing, research and evalu-
ation – Martell remains firm St Ives can 80
adapt. ‘We are focused on the execution 70
and delivery of marketing campaigns. 60
We already have relationships with large
50
companies that take our print, so we
40
hope our widening skills will help sell F M A M J J A S O N D J
more services to these clients.’ ■ Source: Thomson Datastream
35
100211 p36 Oracle 8/2/11 10:18 am Page 36
The Oracle The markets demystified
The concept of the equity risk premium is back in vogue as the Arab world sees further unrest
How to quantify risk
Russ Mould
he concept of the equity risk pre-
T mium (ERP) is one that is usual-
ly only rolled out when markets
are volatile, share prices are wob-
bling and market strategists in particu-
lar are trying to assess the impact of
some unforeseen event upon their valu-
ation models. This is because while com-
mentators, including Shares, will talk
about ‘increasing appetite for risk’ or
‘growing risk aversion’ among investors,
quantifying the impact of this is a diffi-
cult task. The ERP helps analysts,
investors and journalists alike to do
just that.
All investors need to do is understand
the idea of the ERP and be aware of it.
But because it is very subjective and
largely based on historic data, market
punters should not let themselves be
bamboozled by it. A simpler way of think-
ing in terms of ‘risk’ is to acknowledge
markets do not like confusion or uncer-
tainty and are likely to fall when unex-
pected events engulf the world. Thus the
ERP will rise and equities fall when
there is a revolution, oil price spike,
bank collapse or other exogenous shock.
Share prices will rise when confidence
returns – and the ERP declines – as the
market prices in events and sees a
return to normality, in the form of a
credible government, stable commodity
price or functioning banking system.
In the case of the ongoing unrest in
the Arab world, markets have decided
there will be a benign resolution and pro-
Western democracies will replace
incumbent dictatorships. At the time of
writing America’s S&P 500 has risen
eight days in 11 as market confidence
has soared. Yet were more blood to be
shed in Egypt, Jordan or Yemen, or a fun-
damental Islamist regime hostile to
Israel and the West come in to power at
a Middle Eastern state, investors may
take fright and book profits as uncertain-
ty develops – or, to use, market speak,
the equity risk premium rises.
History of risk
In essence, the ERP is the return
required by investors over and above
36
Calculating WACC
Percentage funding of equity
MULTIPLIED by cost of equity
Percentage funding of debt
MULTIPLIED by cost of debt
Cost of debt is simply the interest
rate a corporation pays on its
liabilities. Cost of equity is
calculated as:
(Risk free rate + equity risk
premium) MULTIPLIED by beta
the return on (purportedly) risk-free
investments such as government
bonds to compensate for the addition-
al risks involved in buying shares
rather than gilts.
In the event of a company bankrupt-
cy, bondholders are likely to get some-
thing back, even if it is a percentage of
their original investment, or so many
‘pence in the pound’. In theory, bond
prices should not be unduly volatile
while the instruments offer a yield and
if the company or country does not go
bust the initial investment is paid back
when the bond matures. Equity holders
get no such comforts. They are at the
bottom of the pecking order and likely
to get nothing in the event of a default.
They are not guaranteed to get their
money back from an investment. And
many firms do not pay a dividend yield
of any kind. But in return for these
potential drawbacks, the shareholder
can accrue substantial capital gains,
and some dividend income, as share
prices rise and firms pay out profits.
The investor simply has to ensure the
investment made offers sufficient
upside to justify the risks involved.
The ERP is widely assumed to be
between 2% and 5%, but this is a subjec-
tive assessment. It can be simply
assessed by determining the historic
performance of equities - 7.4% per
annum compound capital return on the
FTSE All-Share since its inception in
1962 - and subtracting from that the ten-
year government bond yield of 3.8%,
making for a risk premium of 3.6%.
These figures will vary from country to
country and region to region, with devel-
oped markets generally having lower
ERPs than emerging ones.
Risk versus return
This is a useful number – even if it is a
backward-looking one and markets are
forward-looking discounting mecha-
nisms – because the ERP is an important
part of any discounted cashflow (DCF)
calculation, used to quantify the long-
term intrinsic valuation of a company. A
DCF projects a firm’s operating free
cashflow (OpFcF) out in to the future
and then ‘discounted’ back using the
company’s weight-adjusted cost of capi-
tal (WACC) to generate a present value
of the income stream. This analysis has
four key components:
• A basic operating free cash flow
(OpFcF) calculation
• Establishing forecasts for OpFcF over
at least ten years, ideally longer
• Determining an appropriate weighted
average cost of capital (WACC)
• Discounting future OpFcF using the
WACC to establish fair or intrinsic
value for the equity
The Oracle will return to DCFs later in
this series. While by no means the per-
fect tool, they illustrate how rising or
falling risk appetite, as gauged by the
ERP, impacts long-term equity valua-
tions. A firm’s WACC is used for the
process of ‘discounting back’ future cash
flows. The lower the WACC, the higher
the present value of that cash and vice
versa. WACC is assessed as shown in the
formula above (see box).
Thus if the ERP rises – and risk is out
of fashion – equity valuations will fall, as
the WACC will increase and future cash
flows be seen as worth less. If the ERP
falls – and risk is in fashion – equity valu-
ations will rise as future income streams
are perceived to be worth more. ■
Shares | 10 January 2011
100211 p37 MM 8/2/11 10:48 am Page 37
Sentiment toward the greenback may prove excessively bearish
Why 2011 may be win-win for dollar
Nick Beecroft
ast year, our Saxo Bank
L 2010 Outlook document asked
whether the never-ending theme
of hyper inverse correlation of
risk appetite with the dollar and Japanese
yen would end. The answer was ‘maybe’
for the yen and ‘definitely not’ for the
dollar, which ultimately traded almost the
entire year as the flipside of risk appetite.
Yet we suspect 2011 could finally see some
decoupling of this pattern.
Despite its weak start to the year, we
wonder if the dollar is set for a win-win
in 2011, even if we dislike the currency’s
longer-term potential. One thing seems
certain: volatility is going nowhere but
up, especially considering the tense
dynamics of the global macroeconomic
and political landscape.
Setting the scene
Current macroeconomics may be very dif-
ferent from those we saw as we headed
into 2010, but the major developed coun-
tries are still in a woefully vulnerable
state. Too much ‘easy money’ from the
major developed countries seems to be
winding up as ‘hot money’ capital flows
into emerging arenas, where asset mar-
kets and domestic economies are on fire
once again, and the danger is overheating.
Also, the developed world’s central banks
have been so ready to reach for the print-
ing press as the solution to all problems,
that the theme of the demise of fiat cur-
rencies has gripped the market’s atten-
tion and sent hard asset prices rocketing
higher. Central bank policies are heighten-
ing global trade tensions and already a
number of emerging market countries
like South Korea and Brazil have moved to
stem strength in their currencies with cap-
ital controls and punitive taxes on foreign
owned assets.
In 2011, the European Central Bank, US
Federal Reserve, Bank of Japan (BoJ) and
Bank of England will all remain in easy
money mode, while major emerging mar-
ket economies – China, in particular – des-
perately fight to deflate potential asset
and credit bubbles.
This mismatch of policy needs could
prove an explosive cocktail; the nightmare
culmination of these tensions would be an
Shares | 10 February 2011
The inside track Mr Market
outbreak of trade wars. The positioning in dollar-funded
irony of almost all attempts to
inappropriately control cur-
rency values is they often pro-
long imbalances and make
the eventual unravelling of
carry trades and a classic ‘sell
the rumour, buy the fact’
reaction to the Fed’s well-
anticipated moves.
Despite the central bank’s
the misguided policy that huge new commitment to
much worse - as exemplified purchase $600 billion in US
by the European Exchange Treasuries by mid-2011,
Rate Mechanism crisis of the interest rates have surged
early 1990s. since the launch of QE-II,
making the dollar look more
Calling the options Nick Beecroft is attractive in terms of yield
Here are a couple of potential comparisons with the rest of
Senior Markets
scenarios for 2011. the world. The simmering
Consultant at
• Commodities. These con- Eurozone debt crisis and a
Saxo Bank
tinue to march higher until BoJ lurching into massive
growth is hampered by col- new QE moves have also
lapsing corporate margins and the high helped the buck to look ‘less bad’ in what
proportion of consumers’ pay dedicated amounts to an ugly contest among the
to the bare essentials, rather than dis- G3 currencies. Maybe the dollar bear
cretionary spending. market is ending – and could the green-
• China. The country slams on the brakes back be a leading indicator for worsening
and lurches into a hard landing that risk appetite?
sees a profound reassessment of global The market has a profoundly large
growth potential. structural short in the dollar heading into
2011, and complacency on global growth is
Neither scenario is particularly positive extremely high. Any disappointment in
for global risk appetite. Whether one of the global recovery would see an unwind-
these two scenarios comes to pass or not, ing of dollar-funded pro-risk positions. An
we have a hard time imagining a contin- alternative argument is that even if the
uation of the current environment of growth stumbles along quite well in the
simultaneous rises in interest rates, US and beyond, investors may look else-
commodities prices and equity prices. where for funding currencies with even
Something has got to give eventually and lower yields – the Swiss franc, yen and
all three can fall if growth projections even the euro come to mind.
prove over-optimistic. Another important factor to consider in
Eventually, risk will have to consoli- the coming year is the possibility the Fed
date if interest rates or commodity could come under increasing pressure
prices continue to rise from their late from the obstreperous new Congress. It is
2010 levels. The only way we get the clear Fed chairman Ben Bernanke would
‘Goldilocks’ scenario is if growth contin- not hesitate to launch further rounds of
ues while interest rates and commodi- QE to address the mounting debt crisis at
ties remain range-bound, a scenario that the municipal and state level if he felt the
would continue to favour risk assets. need was there. But there seems to be a
Our foreign exchange forecasts for 2011 growing chance Congress would move to
assume a less sanguine outcome. block further Fed activism.
It could be a win-win year for the dollar,
Dollar win-win despite the awful long-term fiscal vandal-
At the tail end of 2010, the dollar bounced ism implied by the Obama/Republican tax
significantly after the steep sell-off in deal. Indeed it is an important caveat to
anticipation of the QE-II announcement our outlook that America begins to show
in early November. That rally can be writ- signs of fiscal probity in 2011, perhaps driv-
ten off as a result of overzealous market en by a Tea Party-invigorated Congress. ■
37
100211 p38-41 sector 8/2/11 4:04 pm Page 38

Sector report The complete guide to investing in... FOOD & DRUG RETAILERS

FTSE ALL-SHARE
SECTOR PERFORMANCE
DATA SINCE 1 JANUARY 2011 %
The strong
1.
2.
3.
4.
Technology Hardware & Equipment 23.1
Life Insurance
Mobile Telecommunications
Oil & Gas Producers
9.5
6.6
6.6
get stronger
5. Banks 6.1
6. Nonlife Insurance 5.6 John Marshall
ising crop prices, pricing pressure are down by some 2%. The market appears to

R
7. General Industrials 4.7
8. Health Care Equipment & Services 4.4 from discounters and sagging con- have polarised with discounters such as Aldi
9. Software & Computer Services 4.1 sumer confidence all look like and Lidl performing well. In the past 12
10. Construction & Materials 4.1 strong headwinds for the Food & weeks, Aldi’s market share has increased
11. Electronic & Electrical Equipment 4.1 Drug Retail sector, but history shows they are from 2.9% to 3.1% and Lidl’s from 2.2% to
12. Media 3.1 all surmountable. 2.4%, according to research firm Kantor.
13. Oil Equipment, Services & Distribution 2.5 First, the supermarkets’ muscle means the Asda, Tesco and Morrison are therefore all
14. Financial Services 1.6 bulk of the pain caused by higher ingredient desperately trying to reverse the discoun-
prices is traditionally felt by their suppliers ters’ charge. Although Sainsbury was one of
FTSE All Share 1.5
and the Food Producers sector – the chains the winners over Christmas, when it suc-
15. Forestry & Paper 1.3
are experts are maintaining margins even ceeded in becoming the industry’s number
16. Aerospace & Defense 0.9
during periods of rising input prices. Second, two, January was a less happy month.
17. Personal Goods 0.5
consumer confidence is ebbing, yet this could
18. Industrial Metals & Mining 0.5 FTSE ALL-SHARE
simply lead to a repeat of 2009’s trends FTSE ALL-SHARE FD & DRUG RTL
19. Support Services 0.3
toward eating out less and in more and FTSE ALL-SHARE FD PRODUCERS
3200 Rebased to first
20. Alternative Energy 0.1
greater demand for what are, for the big gro-
21. Fixed Line Telecommunications -0.2 3100
cers, higher margin own-label brands. Finally, 3000
22. Equity Investment Instruments -0.2 the major groups are tackling the discounters 2900
23. Industrial Transportation -0.3 head on and their aggressive physical expan- 2800
24. Real Estate Investment Trusts -0.5 sion plans should erode the market share of
2700
25. Real Estate Investment & Services -0.8 smaller rivals.
2600
26. Household Goods & Home Construction-0.9 As a result we believe the grouping will
2500
27. Food & Drug Retailers -1.9 start to show improved price momentum as
2400
Drug Retailers the market’s fears prove unfounded. Our pre-
2300
Food Retailers & Wholesalers ferred picks are the more value-conscious F M A M J J A S O N D J F
Source: Thomson Datastream
28. Gas, Water & Multiutilities -2.2 supermarket pairing of Morrison (MRW)
29. Mining -2.3 and Tesco (TSCO). We would avoid FTSE ALL SHARE FD & DRUG RTL
30. General Retailers -2.3 TESCO
Sainsbury (SBRY) on valuation grounds and
MORRISON(WM)SPMKTS.
31. Chemicals -2.4 are concerned confectioner Thorntons SAINSBURY (J)
6000 Rebased to first
32. Beverages -2.5 (THT) is still hamstrung by structural
5800
33. Travel & Leisure -2.7 challenges it is proving unable to address.
5600
34. Pharmaceuticals & Biotechnology -4.2
5400
35. Tobacco -4.2 Rising to the challenge
5200
36. Food Producers -4.5 The Big Four of Asda, Morrison, Sainsbury
5000
37. Electricity -5.1 and Tesco will have to flex their muscles
4800
38. Industrial Engineering -7.3 again in 2011. Underlying sales at the begin-
4600
39. Leisure Goods -12.2 ning of the year have been disappointing for
4400
40. Automobiles & Parts -12.8 the sector as a whole. Broker Jefferies
4200
SOURCE:THOMSON DATASTREAM 02 FEB 2011 International estimates like-for-like revenues F M A M J J A S O N D J F
Source: Thomson Datastream

38 Shares | 10 February 2011

100211 p38-41 sector 8/2/11 4:04 pm Page 39

FOOD & DRUG

RETAILERS Sector report

agreed food input prices will rise this CONCLUSIONS

year. Clive Black of Shore Capital is rela-
tively optimistic with his forecast of a 2% Food & Drug
to 4% rise in underlying food costs. Retailers
Nicola Mallard of Investec believes Summary
prices will rise by ‘upwards of 5%’. Tom The sector is better able to survive the down-
Gadsby of Matrix believes food price turn in consumer confidence than other con-
inflation will reach 5% by June as higher sumer-orientated sectors. It generates strong
wheat, cocoa and coffee prices feed cashflows. Trading down to own-label prod-
through. Whoever is right the consumer ucts helps margins. Eating in may become
will be faced by rising food prices which the new eating out. All the major companies
will go up by much more than incomes, should increase their dividends.
encouraging many to go down the dis- BUY Tesco, Morrison
count route. This could in turn pressure SELL Thorntons, Sainsbury
the higher-end supermarket chains and Bull case
may explain the picture drawn by the • Strong cashflows
chart (page 38) which shows the leading • Rising dividends
firms lagging the FTSE All-Share. Yet the • Undemanding ratings
relationship between soft commodity Bear case
prices, as tracked by the ETFS • Consumer confidence on the wane
Market research Agriculture £ DJ- • Little corporate activity
group Nielsen sug- FTSE ALL-SHARE FD & DRUG RTL AIGCI (AGAP), • Recovery by discounters
gested it was no ETFS CMOD.SECS. (FRA) AGRIC.DJ.AIGCI and the food
longer outperform-
7000
retailers offers The story in numbers...
6500
ing the sector. more grounds for Risk to earnings forecasts
This is likely to be 6000 encouragement. (5=upside risk, 1=downside risk)
a much tougher year 5500 The chart (left)
1 2 3 4 5
for those at the qual- shows how food
ity end such as 5000 retailers’ shares Earnings predictability
Sainsbury, which 4500 have generally (5=very high, 1=very low)
trades on a much 4000 tracked agricultur- 1 2 3 4 5
higher rating than al price trends. Valuation
3500
Tesco and Morrison, 2006 2007 2008 2009 2010 That they have (5=very cheap, 1 very expensive)
Source: Thomson Datastream
its two quoted com- failed to do so
1 2 3 4 5
petitors. This premium is not justified by since the autumn of 2010 suggests either
the prospects facing these three compa- the sector is set to rally or soft commodi-
Cashflow
(5=very strong, 1=very weak)
nies, in our opinion. ties are ripe for a pullback.
Fundamentally, Sainsbury looks over- 1 2 3 4 5
valued. It lacks the international expo- Austerity winners Against the herd?
sure of Tesco although it has overseas Food price inflation is also coinciding (5=all brokers negative, 1=all positive)
ambitions. Were it to actually seek to with falling consumer confidence.
enter an emerging market - India and Sentiment declined dramatically in
1 2 3 4 5
China have both been mentioned by January amid fears about the VAT Sector performance, 12 months
management – this would act as a brake increase the pace of economic recovery FTSE ALL SHARE FD & DRUG RTL £
on earnings, at least initially. and the outlook for unemployment. FTSE ALL-SHARE
But past experience would suggest 6000
Rebased to first
Hefty discounts neither crop inflation nor consumer 5800

The counter attack by Asda, Morrison sentiment will hit the sector’s perform- 5600
and Tesco against the discounters has ance significantly. During the recession
5400
led to an increase in the amount of price there was anecdotal evidence home
5200
activity with promotions accounting for entertainment became more popular
5000
38% of transactions. Much of the price with ‘eating in becoming the new eat-
cutting has been financed by the unfor- ing out’. That should be good news for 4800

tunate food processors. In the short those food retailers such as Marks & 4600

term this can only get worse. Spencer (MKS) and Waitrose who 4400
F M A M J J A S O N D J
The problems this can cause were emphasise quality as much as price. In Source: Thomson Datastream

demonstrated by the recent collapse of addition the woes of Headland show it Consensus
Headland Foods, which was one of two is the food processors who get squeezed
main manufacturers of own-label frozen by rising ingredient costs, not the big Total broker Buy ratings on stocks: 26
prepared meals. All commentators are retailers. The chart (page 38) shows Total broker Hold ratings on stocks: 19
Total broker Sell ratings on stocks: 11

Shares | 10 February 2011 39

100211 p38-41 sector 8/2/11 4:04 pm
Sector report The complete guide to investing in...
SECTOR RANKING
1 Competition Test is introduced into
5 late. The supermarkets have demon-
10
15 14 Food and drug retailers
20
25
30
32
35
40
12 Jan
5 Jan
how food retailers have lagged food pro-
ducers of late and we would expect this
trend to reverse.
As the consumer seeks value there is
likely to be a switch from branded to own-
label goods. This is to the benefit of retail-
ers as the latter offer better margins.
Physical expansion
Although it is three years since the
Competition Commission recommend-
ed the appointment of an Ombudsman
to deal with complaints from suppliers
and changes in the planning laws to
encourage competition neither change
has been introduced. There has been a
long debate about the funding of the
Ombudsman with the end result that
nothing has so far happened.
So far as planning is concerned the
‘Competition Test’ is the kernel of the
Commission’s recommendations but it is
yet to be introduced. At least lock-out
deals under which rival supermarkets
could be prevented from setting up near-
by have now been outlawed. The threat
posed eventually by the Competition
Test may be a factor in encouraging the
continued expansion by the ‘Big Four’.
Dave McCarthy of Evolution has
estimated Asda, Morrison, Sainsburys
and Sainsbury will collectively
increase their space by 33% over the
next five years. Sainsbury is seen lead-
ing the charge with a 44% increase to
26 million square feet.
40
Page 40
FOOD & DRUG RETAILERS
This expansion means whenever a
the planning system it will be far too
strated an ability to outnegotiate the
competition authorities in respect of
both the Ombudsman and this test.
Little net gain
Although the internet has revolu-
tionised many sectors such as electri-
cals, entertainment and books the
27 impact upon the grocery industry has
been much less. Ocado (OCDO)
has racked up sales growth but has yet
to report a maiden profit. It is doubtful
37 36
whether any of its direct competitors
are in the black, either.
19 Jan
26 Jan
02 Feb
So far neither Morrison nor Marks &
Spencer have generated a meaningful
online presence. That has led to spec-
ulation either might bid for Ocado. We
Source: Shares, Thomson Datastream regard this as unlikely. Dalton Phillips,
Morrison chief executive officer and
Planned expansion in floor space his opposite at M&S, Marc Bolland,
2011-2015 (%) have both emphasised they will only
50
enter the online food sector if they can
44 do so profitably.
40
Acquiring a highly rated company is
therefore scarcely the ideal route for
33 32 either. Morrison has, along with the
30
28 Co-op, also been linked with Abel and
Cole, a Manchester-based organic food
home delivery specialist. Morrison
20 also owns farms and might welcome
the chance to tap into an existing prof-
itable organisation.
10
Despite producing better-than-
expected fourth-quarter figures ana-
lysts are still sceptical about Ocado’s
0
Source: Evolution Securities valuation. At 247p the shares trade at
165 times of this year’s 1.5p consensus
Targeted floorspace, square feet earnings per share (EPS) forecast.
(million) by 2015 Waitrose is rolling out its offer across
50
London which will increase competi-
46
tive pressure. What is more interest-
ing is the future of John Lewis
40
Partnership’s (JLP) 10.4% stake.
Although the lock-in period expired at
30 the beginning of January, JLP could not
26 25 deal before the results as it was repre-
sented on the Ocado board by Patrick
20 Lewis. Were JLP to do so now this would
16
have an immediate impact on sentiment.
Meanwhile the stratospheric rating of
10
the shares underlines how vulnerable
they are to any change in sentiment.
THE WRITER HOLDS SHARES IN TESCO, MORRISON
0
Source: Evolution Securities GREGGS AND HOME RETAIL
Shares | 10 February 2011
100211 p38-41 sector 8/2/11 4:04 pm Page 41

FOOD & DRUG

RETAILERS Sector report
Morrison (MRW) 265p

Morrison expands its horizons

ccelerated physical expansion, ing to develop a ‘profitable’ online propo-

A
MORRISON (WM) SPMKTS.
the roll-out of convenience FTSE ALL SHARE FD & DRUG RTL £ sition, although initial progress is more
stores and an improved online 320 Rebased to first likely with convenience stores.
offering should all revive earn- 310 Meanwhile the Bradford firm will
ings growth and share price performance 300 increase its sales area by some 5% in
at Morrison (MRW). An update from 2011-12, helped by the acquisition of 16
290
chief executive officer (CEO) Dalton former Netto stores from Asda. The £7.3
Phillips next month (10 Mar) alongside 280 billion cap is also making better use of its
full-year results could help the stock 270 existing space by rationalising ranges and
shake off its torpor. promotions. This should enable the group
260
After three stellar years, Morrison’s to increase the importance on non-food
more recent performance has been 250 F M A M J J A S O N D J where it lags its main competitors. In
Source: Thomson Datastream
rather pedestrian. Physical expansion food, Morrison’s historic emphasis on
last year was a mere 3% and like-for-like sales growth decel- ‘value’ should be helpful in view of the risk of a decline in
erated. CEO Phillips has set out to restore momentum via the consumers’ living standards.
development of convenience stores and online shopping. A At 265p the shares trade on a prospective price/earnings
clothing experiment with Peacocks has also been extended as ratio (PE) of 10.5 times for 2011-12, which looks decent value.
Morrison has pushed its non-food offer. The CEO is promis- THE WRITER HOLDS SHARES IN THIS COMPANY

Tesco (TSCO) 398p Thorntons (THT) 94.5p

SELL
Buy the big boy Not so sweet

O C
ver the past decade retail behemoth Tesco (TSCO)
has transformed itself from being a company with
a strong UK bias to one with a strong international
presence. In addition, the brand is being extended to
include banking, insurance and telecoms. We would expect
this strategy to continue and be a further boost to growth.
As such we find the valuation discount to rival Sainsbury
(SBRY) baffling, and believe Tesco’s 12.1 times prospective
price/earnings ratio (PE) is too low relative to its peer’s
14.7 times multiple.
Tesco now generates 16% of its revenues from Europe and
15% from Asia. It is strongly committed to the emerging
economies of Central Europe rather than the mature economies
of Western Europe. The success of this strategy was demon-
strated over Christmas when international sales grew 14.2%,
compared with much more modest growth in the UK. New chief
executive officer Phil Clarke has underlined his commitment to
Asia by appointing the first chief executive Asia.
Despite the promise of its European and Asian expansion
its US venture, Fresh and Easy, has admittedly been less than
successful. It lost £165 million last year. Tesco has said the
US will move into
profitability in TESCO
FTSE ALL SHARE FD & DRUG RTL
2012-13, helped 460
Rebased to first
by strong sales 450
growth. Were 440
it not to do so, 430
Clarke is unlikely 420
to tolerate 410
hocolatier Thorntons (THT) continues to struggle with
seasonality of demand and the cannibalisation of its
own stores’ sales by business generated through the
supermarkets. Until these structural challenges have been
properly addressed the shares should be avoided.
Last month’s (13 Jan) Christmas trading statement perfectly
encapsulated the Derbyshire firm’s problems. Although sales of
the Thorntons brand increased the mix of business was unhelp-
ful with higher sales through supermarkets and lower revenues
from its own stores, where like-for-like sales fell 5.9%. That was
the third straight decline during the key festive selling period.
This looks to confirm how the increased emphasis upon sales
through supermarkets is eroding business done through the
group’s own venues, which are also suffering from inadequate
investment over the past three to four years. In the longer term
this changing mix of business threatens to hit margins as super-
markets tend to be demanding customers.
A strong seasonal bias in business to gift occasions such as
Christmas, Easter, Valentine’s Day and Mothering Sunday also
creates difficulties for both the stores and Thorntons’ factory.
Peaks and troughs in demand cause production problems for the
£66 million cap, while
the highly rented THORNTONS
FTSE ALL-SHARE FD & DRUG RTL
stores suffer from 130 Rebased to first
inadequate sales over
120
much of the year.
In the medium term 110
Thorntons will seek to
reduce the size of its 100

ongoing 400
retail estate, but sup- 90
losses for long. 390
plying supermarkets
THE WRITER HOLDS 380
can be hazardous as 80

SHARES IN THIS 370

many own-label 70
F M A M J J A S O N D J F M A M J J A S O N D J
COMPANY Source: Thomson Datastream suppliers can testify. Source: Thomson Datastream

Shares | 10 February 2011 41

100211 p42-43 chartist 8/2/11 10:14 am Page 42

Chartist Trend spotting

Simon Griffin 12-month profit on all Chartist trades: +5.2% vs.
email: chartist@shares.msm.co.uk FTSE All-Share +3.2% *

Nikkei 225
10,592 EUR/INR
ast November’s break above a major bear trend 61.89 SELL

L line looks decisive and I remain bullish on the

Japanese equity market. My ‘buy’ call on the
Nikkei 225 benchmark at 9,431 is already yielding ollowing its meteoric recovery since early January
a 12.3% profit (Chartist, 29 Jul ‘10) and I am increasing my
price target from 11,339 to 12,051, for potential further
upside of 14%.
This column first turned positive on Japan after the
Nikkei’s downward correction which followed April’s test of
F now looks a good time to sell the euro against the
Indian rupee at INR 61.89. My price target is INR
58.50 offering risk-tolerant short-sellers a poten-
tial 5.5% gain which experienced currency punters might
like to gear up by using a spread bet or contracts for
and rotation off the bear trend line that drew its origin difference (CFDs).
from the July 2007 high of 18,262. That correction initially The European single currency buzzed up from INR 58.80
found support at 9,197, the 50% retracement of the rise to INR 62.90 in the space of just three weeks. The latter
from the 7,055 low posted in early 2009 to April’s 11,339 mark represents not only last November’s high but an
high, the latter mark itself being an almost exact test of the influential area of support and resistance back in autumn
38.2% retracement of the major fall from 18,262. and winter of 2008/09. It also sits just shy of INR 63.40 and
Bears failed in their attempt to force the index down to the 50% retracement of the fall from September 2009’s INR
the 61.8% retracement level at 8,692 in late August and by 71.20 high to last May’s INR 55.50 low.
early November an inverse-head-and-shoulders pattern The speed of the bounce and the risk of ongoing euro
could be discerned. A breakout above the neckline at 9,660 volatility as the European Union and European Central
then targeted a 913-point upmove and sure enough the Bank wrestle with the ongoing sovereign debt crisis sug-
Nikkei hit a close high of 10,590 in mid-January. It since gests a range trade in the EUR/INR cross might prove an
corrected to test both minor support at 10,226 and its rising effective strategy. The logical target would be for the euro
50-day moving average. to rotate back toward evident support close to INR58.80, via
Yet the key chart feature remains November’s break resistance at INR61.00, a zone of both support and resist-
above the major bear trend line that had its origins at ance since last summer.
18,262. To my mind this signalled a major trend change was Only a resurgence in the single currency that takes the
occurring. Once 10,635 is breached, the rising resistance rate beyond INR62.90 and then the 50% retracement level
line at 10,850 will not be easy to overcome. Yet I believe it at INR63.40 would suggest the euro is primed for further
will give way and open the door to a retest of 11,339, so long significant gains. In the absence of any such sign I would
as the advance begins by mid-April. A successful negotia- expect the counter to sag back to INR 58.50 in the coming
tion of that key resistance threshold would pave the way weeks, especially as the Indian equity market stands near
toward my new price target of 12,051 and an assault on a 18,000 as measured by the BSE Sensex index, a historic
mark whose influence can be seen dating all the way back source of significant resistance and therefore likely
to March 2001. comparable support.

Nikkei 225 EUR/INR

19000
72
18000
71
17000
70
16000 69
15000 68
14000 67
66
13000
65
12000 64
63
11000
62
10000 61
60
9000
59
ACTUAL ACTUAL
58 50-DAY MOVING AVERAGE (M1)
8000 50-DAY MOVING AVERAGE (M1)
57 200-DAY MOVING AVERAGE (M2)
200-DAY MOVING AVERAGE (M2)
56

4/12/00 Jul '02 Jul '03 Jul '04 Jul '05 Jul '06 Jul '07 Jul '08 Jul '09 Jul '10 Jul 21/4/11 16/7/08 Oct '09 Apr Jul Oct '10 Apr Jul Oct '11 4/3/11
www.sharescope.co.uk Chart (c) Share Scope www.sharescope.co.uk Chart (c) Share Scope

* FTSE All-Share comparative performance is from the start of each technical trade until present or when profit is taken/stopped out. Portfolio runs
on a 12-month rolling basis. In the past 12 months the FTSE All-Share is up by 17.9%. By asset class the Chartist’s returns are as follows: stocks
+10.4%, indices -0.4%, commodities -0.5% and currencies -0.9%. Buy calls have recorded an average 9.1% gain and sell/short calls a 2.4% loss.
42 Shares | 10 February 2011
100211 p42-43 chartist 8/2/11 10:14 am Page 43

Trend spotting Chartist

RSA Insurance (RSA) Aminex (AEX:AIM)

Market value: £4.8 billion BUY
BUY
Prospective PE 2011: 10.4 138p
Market value: £41.3 million 9.1p
Prospective PE 2012: 10.7 TARGET Prospective PE 2011: 23.7 TARGET
1-month price change: +6.7% 167p Prospective PE 2012: n/a 18p
12-month price change: +7.9% 1-month price change: +2.5%
STOP LOSS
Dividend yield 2011: 6.8% 130p 12-month price change: -24.2%
STOP LOSS
7.5p
Dividend yield 2011: n/a
ock-solid support at 115p looks to cap the downside

R and resistance at 138p looks as if it is finally about to

crack, offering substantial potential gains. My short-
term target for RSA (RSA) is 167p for 21% upside
although that could just be the precursor of a 67% run all the
way up to 230p.
T
his week I find myself in pleasing agreement with my
fundamentally-based colleagues with regard to oil min-
now Aminex (AEX:AIM) (see Commodities, page 26).
The technical picture suggests to me the shares have the
potential to double to 18p.
Shares in the non-life insurer remain a pale shadow of their for- Oil explorers can produce some of the most spectacular price
mer selves as they are still mired miles below March 1998’s all- moves and Aminex is a stock with previous form in this respect –
time high of 650p. Following that peak, RSA declined to a low of back in 1990s it was once the best annual performer in the whole
just 45p by early 2003 and though it had made it back to 172p by of the UK market. Since then the £41 million cap has continued to
the time the market peaked in 2007, the shares failed to properly seek the strike that would transform its fortunes and the global
test even the weakest correction threshold, the 23.6% retrace- focus of operations has gradually changed as a result.
ment of the preceding decline. That 188p level remains unbroken The long-term chart shows the share price was capped dur-
even now. ing 2006 by the 47p peak posted back in mid-2000. A second
More encouragingly RSA’s shares dipped relatively little during failure here condemned the shares to a decline that culminat-
the 2007 to 2009 bear market and handsomely outperformed the ed in their 4.5p low during the dark days of early 2009. This
FTSE All-Share during that time. Strong support close to 115p move took the shares below what might have been regarded
refused to give way on several occasions and in May last year as solid support close to 8p, site of the spike lows seen in mid-
share price action finally encountered the proposed bull trend 2004 and 2005 which ultimately prompted the rally toward
line that could be drawn to connect the lows seen in August 2004 April 2006’s retest of 47p. That new nadir in turn laid the base
and May 2005. This indicator has as its origin the first major cor- for a recovery to 17p by 2010.
rection following the 2003 45p bottom, a method I often prefer to This price action enables the technical analyst to place on the
that of using the actual low itself. chart a long-term bear trend line that connects the 2006 peak with
On encountering this line the price stabilised and by August of those of June 2008 and February 2010. I can also draw a line that
last year had recovered to test resistance close to 138p. The shares links the series of lower highs seen since February of last year. Last
have since ranged between 120p and 138p and the latter has come November’s break above this indicator was the first sign of encour-
under attack yet again. My hunch is the outcome may be differ- agement to bulls. On the downside there is a line that connects the
ent this time, as RSA is finally testing the super long-term bear March 2009 low with the bottoms seen in July and October 2010.
line that can be drawn to join up the highs of 1998 and January This latter line also produced key support in January as the shares
and June 2001. Add in the idea that the much of the last two years’ struggled a little with resistance from their 200-day average, above
trading has formed a saucer-shaped bottom on the chart and it which the 50-day line had encouragingly climbed in mid-January.
just might be RSA has finally set itself up for a fresh rally. Aminex has moved up through the shorter-term bear trend
My first objective would be 168p level, a source of resistance line and possible formed a symmetrical triangle pattern that
that proved too strong in 2007 and in 2008, ahead of a true test of should produce a pop to 12p. Such a move would take the price
188p. If that gives way the chart says the long-term congestion at up close to a test of the longer-term bear trend line at 13.5p. A
230p is the next stop. The downside should be limited to 123p at sharp jump in trading volume also suggests sentiment is turning
worst although if that cracked then I would need to rethink. for the better.

RSA Aminex
700 50
600 45
550
500 40
450 35
400
30
350
300 25
250
20
200
15
150

10
100

ACTUAL
ACTUAL
50-DAY MOVING AVERAGE (M1)
50-DAY MOVING AVERAGE (M1)
50
200-DAY MOVING AVERAGE (M2)
5 200-DAY MOVING AVERAGE (M2)

6/1/94 Jul '95 Jul '96 Jul '97 Jul '98 Jul '99 Jul '00 Jul '01 Jul '02 Jul '03 Jul '04 Jul '05 Jul '06 Jul '07 Jul '08 Jul '09 Jul '10 4/3/11 18/10/99 Jul '01 Jul '02 Jul '03 Jul '04 Jul '05 Jul '06 Jul '07 Jul '08 Jul '09 Jul '10 Jul 4/3/11
www.sharescope.co.uk Chart (c) Share Scope www.sharescope.co.uk Chart (c) Share Scope

Shares | 10 February 2011 43

100211 p44 commods 7/2/11 6:19 pm Page 44

Commodities Unearthing market gems

We do not see gold miner’s trip-up as a reason to worry

Peninsular to
bounce back
Dan Coatsworth
he 9% dip in Peninsular had to be cleared to accommodate a pared to the current 18,000 ounce rate.

T Gold’s (PGL:AIM) share

price upon weak production
numbers (2 Feb) presents a
buying opportunity at 44.75p. We
believe the stock offers considerable
upside ahead of a busy 2011 where it
will almost double production capaci-
ty; start to treat material containing
double the current grade of gold; more
than treble gold output levels; and
advance exploration projects.
The market was disappointed by
Peninsular Gold’s fourth-quarter gold
production from the Raub mine in
Malaysia which came in at 4,524
ounces. Although this was 10% below
the 5,000 ounces forecast by mining
analyst Martin Potts at house broker
Daniel Stewart, he commented it was
necessary for the company to ‘take
this hit’. Peninsular was forced to
process low-grade ore as the material
was located on a section of land that
new tailings dam.
The company is currently processing
a tailings stockpile – which is waste
material from historical mining opera-
tions that still contain gold. The capaci-
ty of its processing plant is being
expanded from 1.1 million tonnes to
two million tonnes per year. Tests will
begin in March to check the equipment
is working properly. This is known as
the commissioning stage.
In the second half of the year,
Peninsular will introduce the richer
oxide material located in the ground.
This has an average grade of 1.4 grams
per tonne, compared to 0.7 grams per
tonne in the tailings. The higher grades
in the oxide material means it will have
less waste rock to process and therefore
produce greater volumes of gold. Potts
reckons the £44 million cap will end the
year with an annualised production rate
of around 60,000 ounces of gold, com-
The company hopes to prove up five
million ounces of gold across its licence
areas. The last exploration results from
Raub included six metres of miner-
alised ore at 40.6 grams per tonne of
gold, which is very high grade. All six
holes reported on 2 February showed
average grades higher than featured in
the oxide resource.
Peninsular will report the first results
by the end of March from a drill pro-
gramme at the Tersang South and
North targets, located around 20 kilo-
metres north of Raub. This will coincide
with the start of drilling at Tenggelan,
seven kilometres north of Tersang, and
more early-stage exploration at other
prospects. Daniel Stewart has a 99p
price target, implying 118% upside.
Shares says: There is a reasonable
explanation behind the production set-
back, making price weakness an
opportunity. Buy.

Contracts up on coal Cotton at 150-year high

Reports suggest 2011-12 contracts between A production shortfall in Pakistan, the fourth
miners and Asian utilities for thermal coal biggest grower of the crop, has helped take
could be settled as high as $145 a tonne at cotton to record highs of $1.81 a pound – its
annual talks later this month. That would highest level since the American Civil War.
equate to a more than 40% increase on the With the price up more than 30% since
previous year. mid-January Shares believes this market
This would be bullish for London-listed mining looks overheated and in the near term canny
giant Xstrata (XTA) and investors should consider commodity punters might like to go short via
buying the shares at £14.50. Although there is spot trading in ther- ETFS Short Cotton (SCTO) at $19.49.
mal coal, large miners such as Xstrata maintain annual contracts A significant pullback would represent a fresh opportu-
with utility companies nity to buy, with
Coal Newcastle FOB 6700kc GAD U$/MT Cotton,1 1/16Str Low -Midl,Memph C/Lb
in a number of Asian the International
XSTRATA ETFS COMMODITY SECS. SHORT COTTON
countries. The supply 150 Rebased to first 180 Rebased to first
Cotton Advisory
of coal has come 140 160
Committee low-
under pressure 130
ering its forecast
140
because of heavy for world cotton
120 120
flooding in stocks as of the
Queensland, Australia 110 100
end of 2011 by
and substantial rainfall 100 80 200,000 tonnes
in other producing 90 60 to 9.2 million
countries such as 80 40 tonnes. (TS)
Colombia, Indonesia 70 20
F M A M J J A S O N D J F M A M J J A S O N D J
and South Africa. (TS) Source: Thomson Datastream Source: Thomson Datastream

44 Shares | 10 February 2011

100211 p45 FX2 8/2/11 10:06 am Page 45

Cashing in on currency Forex

$ / € – Summit confusion
EDITED BY RUSS MOULD

undermines the euro

US economy’s growth trajectory points to further rises in employment

Russ Mould
hile last Friday’s (4 Feb) non-farm payrolls data may is growing and while corporate profits

W have disappointed some, at least the trend remain robust the prospects for more job addi-
remained positive, in stark contrast to the confu- tions should improve. A figure of 60.4 on the US
sion sown by both last week’s (3 Feb) European manufacturing ISM purchasing managers’ index, the highest level
Central Bank (ECB) meeting and the European leaders Brussels seen since May 2004, also read well, while the 68.8 score on the
summit (4 Feb). Shares is therefore happy to maintain its contrar- Chicago PMI was the best number for that indicator since 1988.
ian stance and sell the euro against the dollar at $1.3600, despite The signals from Europe were much less clear. ECB president
our long-term reservations over the greenback’s true worth. Jean-Claude Trichet confused euro bulls by arguing the spike in
News that 36,000 new jobs were created during January in inflation was simply commodity inspired and would be suitably
America substantially undershot the con- transitory. As a result, he suggested, rates of
sensus forecast of 145,000 and again US $ TO EURO (GTIS/TR) 1.0% remained appropriate, disappointing
EXCHANGE RATE
1.45
proved a less positive number than the those who expected a more hawkish stance. In
preceding ADP survey, which had flagged 1.40 addition the Brussels summit failed to find any
the addition of 187,000 new posts against accord on the Franco-German plan for a more
Street estimates of 140,000. A drop in US 1.35 cohesive, pan-European economic policy.
unemployment to 9% helped soothe the 1.30 German plans to raise retirement ages, har-
markets and boost the dollar, even if the monise tax rates and limit government borrow-
decline in the joblessness rate was as 1.25 ing capacity across the eurozone got a big
much due to a statistical anomaly given 1.20 thumbs-down from several European Union
the size of overall labour market had members. Two further meetings were called for
been revised down. Ongoing job creation 1.15 F M A M J J A S O N D J March in the quest for consensus.
Source: Thomson Datastream
adds to the impression the US economy Shares says: Sell the euro at $1.3600.

£ / € – Pound to bounce A$ / ¥ – Commodity prices

as economic picture clears to hurt the yen
Russ Mould Russ Mould

T A
he Bank of England’s Monetary
Policy Committee (MPC) meets to
determine UK interest rates today
(10 Feb) and although no change is expect-
ed, next week’s Inflation Report will make
even more interesting reading. Interest rate
expectations continue to climb and sterling should
therefore be bought against the euro at €1.1880, as the
European Central Bank is likely to hold the cost of borrow-
ing on the continent at 1.0% for some time to come.
Bulls of the pound have been on the ropes since the
Office for National Statistics unveiled a 0.5% drop in UK
gross domestic product for the fourth quarter of 2010 (25
Jan). Yet the data suggests this estimate could be revised
upwards or at the very least the first quarter of 2011 will
see a very strong rebound. January’s reading for the UK
construction purchasing managers’ index (PMI) surged
back to 53.7 from December’s sub-50 mark while the
CIPS/Markit services PMI rose to an eight-month high of
54.5. After the marked decline in services and construction
activity during the final quarter of 2010, a recovery here
suggests the early readthrough for the UK economy in 2011
is much more encouraging.
Shares says: Buy the pound at €1.1880.
fresh upward surge in the
Australian dollar against the yen
is interesting from a technical
and fundamental perspective alike.
Currency punters should ride the ongoing
trend and buy the Aussie against the
Japanese counter at ¥83.46.
The ongoing turmoil in Egypt and the Middle East has
pressured the prices of several commodities higher, most
notably oil and cotton. While Australia is not a big player in
oil it is the globe’s seventh biggest producer of cotton and
an even greater beneficiary of ongoing strength in iron ore,
coal and copper, to name but three. This is in marked con-
trast to Japan, which is a net importer of almost all com-
modities and foodstuffs. It is therefore a likely victim if
unrest in the Middle East persists and drives commodity
prices higher still amid concerns of supply blockages,
whether they are appropriate or not.
Nor did the Reserve Bank of Australia’s decision to leave
rates on hold at 4.5% last week (1 Feb) do anything to
dampen market expectations of further hikes this year. The
central bank increased its gross domestic product forecast
for 2011 from 3.75% to 4.2%.
Shares says: Buy the Aussie dollar at ¥83.46.

Shares | 10 February 2011 45

100211 p46-48 trad feat ISA 7/2/11 6:23 pm
Feature – Isas
The April Isa deadline is looming large and canny investors should be looking to take advantage
A world of choice
s we approach the April tax
A deadline, the subject of
Individual Savings Accounts
(Isas) starts to loom large in the
minds of many investors and financial
advisors. For this year, each of us has an
allowance of £10,200, which can either be
invested up to the limit in a Stocks &
Shares Isa or split 50-50 with a Cash Isa.
Isa investments are free of tax on any cap-
ital gains and on any income in the hands
of the investor, so for a couple that makes
£20,400 that can be sheltered from HM
Revenue & Customs (HMRC).
Come the new financial year starting 6
April, the limits will rise to £10,680, but in
the meantime the focus is on the current
allowance. For those yet to do so, it is a
case of use it or lose it.
Officially, there are just the two types of
Isa, Stocks & Shares or Cash (essentially
bank or building society deposits in a tax
wrapper). Within these categories,
though, you are likely to encounter a var-
ied range of products offering different
degrees of choice. On the Stocks & Shares
side, the main split is between Fund Isas
and Self-Select Isas.
First, though, a look at what you can
invest in. A Stocks & Shares Isa may
include among other things:
• shares and corporate bonds issued by
companies officially listed on a recog-
nised stock exchange;
• gilt-edged securities – that is, UK gov-
ernment bonds – and similar securities
46
Page 46
issued by governments of other coun-
tries in the European Economic Area;
• units or shares in funds authorised by
the Financial Services Authority, such
as unit trusts or Open Ended
Investment Companies (Oeics);
• shares and securities in investment
trusts or companies;
• exchange-traded funds (ETCs)
and exchange-traded commodity
funds (ETCs).
Shares quoted exclusively on Aim cannot
be included in an Isa. Those Aim-listed
stocks that are also listed on a recognised
exchange, for example NASDAQ or
Australia’s ASX, may qualify, but you will
need to check with your broker.
Appeal of DIY
The range of investments is therefore
pretty wide, but not every Stocks &Shares
Isa offers a full range of allowable invest-
ments. Products vary widely, appealing to
savers with different levels of knowledge,
attitude to risk and willingness to devote
time towards researching potential deals.
Some providers offer only their own in-
house funds, which can be limiting if you
decide you want to seek better perform-
ance from another manager. A number of
fund supermarkets exist to help overcome
this type of problem, offering access in
some cases to thousands of funds from a
variety of managers.
At broker TD Waterhouse, which offers
a self-select ‘Trading Isa’, investor centre
representative James Daly says fund Isas
normally offer a relatively limited range
of investments. This can be appealing to
novice investors as they can sometimes be
bewildered by the wide selection of invest-
ments offered by the full-blown version.
‘In many cases, fund Isas also offer good
discounts on charges. However it must be
said that the fund offerings on trading Isas
have improved over the years, so in many
cases an investor can open a trading Isa
and also be able to buy funds for a low ini-
tial sales charge.’
For those who want to invest directly in
shares and are confident of making their
own buying and selling decisions, a Self-
Select Isa is the likely route, allowing cus-
tomers the freedom to choose stocks and
shares as well as funds.
Many stockbrokers and investment
management houses offer Self-Select Isas
and provide varying levels of advice, from
execution-only (no advice) up to full dis-
cretionary, where the broker makes all the
investment decisions.
Online execution-only accounts are
the cheapest way to run a Self-Select Isa
and many help the investor by providing
research resources such as market
reports, news, share tips, charts and
stock screening.
In the past, the costs of taking the DIY
route may have put off some investors
but increased competition between
online stockbrokers means the costs for
Shares | 10 February 2011
 Do you have an

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Join de.co.uk/
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Visit www 0700 720
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or call 084

Lines are open Monday to Friday 7.45am – 7pm. Calls may be recorded. Selftrade® is a trading name of Talos Securities Limited and registered trade mark of Boursorama. Talos Securities Limited is
incorporated in England and Wales (Registration No. 4196325, Registered Address: Boatman’s House, 2 Selsdon Way, London E14 9LA), is authorised and regulated by the Financial Services Authority
(FSA Register No. 208271) and is a member of the London Stock Exchange and PLUS Markets plc.

SHARES_Selftrade_PAGE_20.01.indd 1 14/01/2011 10:18

100211 p46-48 trad feat ISA 7/2/11 6:23 pm
Feature – Isas
basic execution-only services have come
down markedly. There are now several
Self-Select Isas available without annual
fees, which means you just pay the deal-
ing charges.
For those thinking of switching holdings
from existing Isas, Justin Modray, an
IFA and investment specialist at
Candidmoney.com, warns of potential pit-
falls. ‘Beware charges to close your Isa or
transfer to another stockbroker, as these
can be steep,’ he says.
An eye on the charges
Trading commission costs vary widely
between brokers, but generally the cheap-
est way to trade is online execution-only,
rather than via the telephone.
As with non-Isa deals, stamp duty of
0.5% will apply to any purchases of UK-
listed shares, with other such taxes
applied by some overseas countries –
Ireland, for example has a 1% stamp duty.
Check whether the Isa manager you are
considering imposes other charges. These
may include a set-up fee, annual account
administration fee, management fees,
charges for transfers in or contributions,
cash withdrawal charges, account transfer
or transfer out charges. There might be a
charge for reinvesting dividends or for
dealing with corporate actions such as
rights issues.
One of the things that sticks in the craw
of many investors, particularly when they
first get charged, is the ‘inactivity fee’
levied by some brokers if you do not place
a trade – buy or sell – within a certain peri-
od. This may be disguised as an adminis-
tration fee that is not payable if you do
trade, but it adds up to the same thing.
This is the price you have to pay for low
dealing charges. Brokers will say it costs
them money to administer an inactive
account and there has to be a charge to
make up for the lack of commission. But
there is also an upside as many brokers do
now charge lower commissions to more-
frequent traders.
Comparing the charges from different
managers for a full-blown Stocks and
Shares Isa built around a portfolio of
shares is not easy. One industry estimate
of the admin fees on a £20,000 Isa invest-
ed directly in stocks and shares (rather
than funds) as provided by six different
leading firms showed a range of zero to
£117.50 a year, including VAT.
If you are happy to have less control
over when you buy shares, there is a
48
Page 48
cheaper option in the shape of a regular
investment Isa. This allows you to buy
smaller quantities of shares or funds on a
monthly basis.
Brokers such as Halifax Share Dealing,
TD Waterhouse and The Share Centre
offer accounts where they amalgamate all
the requests to buy each share and then
buy in bulk so that share-dealing costs are
greatly reduced.
Taking advice
If you do not have the time, the confi-
dence or the inclination to select your
own investments you might want to
consider an advisory or even a discre-
tionary service.
Given the volatility of markets recently,
has there been a move away from DIY Isas
to advisory or discretionary services? Tim
Whitehead, investment manager at
Redmayne-Bentley, certainly thinks so.
‘We continue to see a steady migration
from self-select to managed accounts,’ he
says. ‘The increased volatility and scope of
investment possibilities really does sup-
port the use of professional help.’
‘If you do not
have the time, the
confidence or the
inclination to select
your own invest-
ments you might
want to consider
an advisory or
even a discretionary
service.’
Peter Day, a partner at Killik & Co, takes
a similar line: ‘When markets are going
up, it is not difficult to make money but
the real skill lies in preserving capital in
more challenging conditions. During the
credit crunch we saw a large pick-up in
activity as clients became increasingly
aware of the value which an advisory
service can add.’
Brokers generally impose minimum
investment entry levels – Redmayne-
Bentley provides a bespoke discretionary
service for sums of over £50,000 while
Killik & Co offers a similar service for min-
imum portfolios of £100,000. Annual
management fees vary, starting typically
at 1% and reducing for larger portfolios.
But while discretionary services tend
to be the domain of larger investors, it
does not necessarily follow that every-
one with a sizeable Isa portfolio should
opt for this route.
Stephen Barber, an independent adviser
to provider Selftrade, explains, ‘We have
many customers who have portfolios of
well over £200,000 who happily manage
their Isas themselves.
‘In many ways a portfolio doesn’t get
more complex to look after as it gets
bigger – you are still likely to have the
same weightings of cash, equities,
bonds and so on.’
Barber adds, ‘I think those who take the
DIY route and build up a sizeable Isa pot
gain trading experience as they progress
so they see no need to migrate to an advi-
sory or discretionary service further down
the line.’
Even investors who prefer to use a dis-
cretionary broker for the bulk of their
investments may run a low-cost execution-
only self-select Isa themselves and ‘as a
sort of hobby’, says Barber.
Building a portfolio
What are the main things to bear in mind
when planning an Isa portfolio? Modray at
Candidmoney.com maintains it is impor-
tant to be aware of how much risk you are
taking and making sure you are comfort-
able with that.
‘With self-select Isas, like most stock
market investments, I'd suggest taking at
least a five-to-ten year view and review reg-
ularly to ensure the holdings remain suit-
able with decent performance potential,’
he says.
Martin Bamford, a financial planner
with Informed Choice, takes a similar
line. ‘To set your long-term investment
aims you need to know your timescales
and the preferred value of your invest-
ment, at least within a range of possi-
ble outcomes.
‘You need to be realistic when setting
these goals, so using the typical long-term
returns from different asset classes is a
good place to start.
‘You should also relate these possible
returns to interest rates and inflation: you
are unlikely to get double-digit investment
returns each and every year in a low inter-
est rate, low inflation environment. Most
importantly, keep your goals under regular
review and adjust them as necessary.’ ■
Shares | 10 February 2011
100211 p50 HB 8/2/11 10:03 am Page 50

The Honest Broker Revealed: the analysts who make you money
EDITED BY SIMON KEANE
Pullback after rival Abbott test is only a blip says analyst

Investec goes positive on Immunodiagnostic

Chris Menon
nvestec analyst Sebastien The Call 1000
IMMUD.SYSTEM HDG.

I Jantet has turned positive on

Immunodiagnostic Systems (IDH: Stock:
AIM) following the recent weakness in Immunodiagnostic Systems
950

its share price, which he considers to (IDH:AIM)

900

have made the risk reward balance look Broker call:

850
more attractive. He is confident the com- Investec upgrades from ‘hold’ to ‘buy’ 30 Nov ‘10 – positive
interims released
pany will deliver against expectations Price target: 5 Oct ‘10 – announces
800
positive trading update
and therefore raises his target price 940p (4.1% upside)
from 911p to 940p. 26 Jan – Abbott announces
Consensus 750 CE marking for Vit D test
In a note issued on 4 February, Jantet
Total broker Buy ratings on stock: 2
explains that following a visit to the com-
Total broker Hold ratings on stock: 4 700 AUG SEP
pany he was impressed both by the granu- OCT NOV DEC JAN
Total broker Sell ratings on stock: 0 Source: Thomson Datastream
larity that underpins the commercialisa-
tion strategy but also by the flexibility of its iSYS platform. Hence, the analyst believes underlying growth remains
Although the recent share price weakness was triggered by strong and forecasts 224 iSYS units will be in the field by the
announcements from both Abbott Laboratories (ABT:NYSE) end of the year, with 160 more being placed in 2012 and
and Siemens (SIEG:DE) they have launched Vitamin D tests 2013. Longer-term growth will be determined by a differen-
in Europe, he believes such concerns are overdone given the tiated range of tests.
focused commercialisation strategy of Immunodiagnostic.
Shares says: Agree. This company continues to impress and
In particular Jantet argues Abbott’s product appears to be
is worth a premium due to its solid growth prospects.
inferior and, while Siemens is a more serious threat, they
Buy at 903p.
both focus on different markets to Immunodiagnostic.

George The Call Sanderson positive The Call

supports FC Stock:
French
on Rathbone Stock:
Rathbone
John Marshall Connection Simon Keane Brothers (RAT)
ollowing French (FCCN) n the expectation of continued Broker call:

F Connection’s (FCCN) Broker call:

year-end trading Seymour Pierce
update Nick George of upgrades from ‘hold’
Seymour Pierce has upgrad- to ‘buy’
ed the retailer from ‘hold’ to Price target:
‘buy’. The company has n/a
confirmed profits will rise to
‘at least £6.8 million’ for the year ended 31 January
from a comparable £1 million in 2010.
This was well ahead of market expectations of
£4.8 million including those of George who was
predicting just £4.5 million. George’s optimism about
the future is based upon two factors. He is impressed
with the strength of the balance sheet with year-end
cash forecast to be £29 million and believes the
company may be able to concentrate upon overseas
expansion having cleared a ‘number of the under-
performing legacy issues’.
Shares says: Agree. The company is no longer fire
fighting and growth is on the agenda now. Buy
at 91.5p.
I strength in equity markets in 2011 Evolution initiates
Michael Sanderson, analyst at with an ‘add’
Evolution Securities initiates coverage on Price target:
Rathbone Brothers (RAT) with an ‘add’ £12.20 (3.9% upside)
recommendation. He comments: ‘In addi-
tion to increasing the FUM (Funds Under Management) base
through increased asset valuations, a rising market would also like-
ly provide a boost to RIM (Rathbone Investment Management) in its
gathering of new money as improved investor sentiment usually
accompanies better markets.’
On top of the organic growth opportunity Sanderson believes
Rathbone will be able to expand via acquisitions. He says:
‘Rathbone sees virtually all the potential transactions that are on
offer in the wealth management sector given its reputation as a
consolidator in the industry.’The analyst forecasts 9% FUM
growth in 2011 and this does ‘not currently include any inorganic
FUM growth.’ He expects a number of large financial groups to
reassess their capital deployment, and thereby the role of their
asset management arms in particular. Sanderson believes addi-
tional opportunities will be created by changes in the regulatory
environment, notably the Retail Distribution Review.
Shares says: Disagree. The bigger challenge facing asset
managers is what happens when fixed interest flows begin to turn
negative. Sell.

50 Shares | 10 February 2011

100211 p51-53 direcs.qxd 7/2/11 6:17 pm Page 51

Investor services guide

To advertise in the Shares Services Directory please telephone
Marcus Reilly on 020 7378 4582

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Send your comments to: The Editor, Shares Magazine, Thames House, 18 Park Street, London, SE1 9ER,
Letters or email us at: editorial@shares.msm.co.uk. We are unable to deal with queries over the phone nor can we advise on investments.

Why buybacks are a blunder

Thanks to Simon Keane for another vided no support for the share price as what, if anything, they achieve? Since
excellent article on share buybacks it fell to its 303p low. Not one com- nearly all the evidence shows them to
(The Oracle, 3 Feb) to follow the mentator I saw suggested that but for be a waste of money the answer must
exceptional one on 2 April 2009 their huge buybacks the share price surely be, no they have not.
(Cover story, The £19.2 billion con). might have fallen further. They had Ken Mitchell, via email
Shares seems almost alone among probably forgotten all about them but
investment magazines and newspa- it probably will not be long before they
pers in realising a lot of share buy- start suggesting BP starts a huge buy- Digging for dividends
backs are a waste of money, though as back programme again. Will it work Thank you for your response to my let-
you point out they have their uses for any better next time? Almost certainly ter (Shares, 13 Jan) regarding share re-
institutional investors. For private not. An amazing thing is the compa- purchases. The Oracle page on how to
investors they are a dead loss. I have nies cannot see this for themselves. tell good from bad buybacks (Shares, 03
lost count of the times a company has Even where Simon Keane suggest- Feb) is exactly the kind of useful arti-
told me money has been returned to ed buybacks deserved a tick I have my cle that keeps me buying Shares.
investors via a buyback. I have never doubts. Yes, a buyback is better than Agreeing with your argument that pro-
seen this money as I would if it were overpaying for a dodgy acquisition, gressive dividend growth is often bet-
paid as a dividend. Marks and but even then I would prefer to get ter than buybacks, would you please
Spencer (MKS) rewarded sharehold- the cash back as a dividend payment consider doing an article highlighting
ers with buybacks over 400p a couple as then I would actually see the cash. companies who have grown dividends
or more years ago. No reward there. If they buyback rather than buy some- continuously for, say, ten years or
Simon Keane gave examples where thing, but the share price falls any- more? Standard and Poor’s make this
big companies buying back underper- way, then the private investor does easy for the American market by pub-
formed those that did not. But he did not benefit from that buyback at all. lishing lists of ‘Dividend Aristocrats’
not also point out the banks spent bil- As for buybacks complementing a who have paid ever-larger dividends
lions of pounds buying back their progressive dividend policy – again for decades, but I am not aware of a
shares only to have to reissue them why not just pay a higher dividend or similar list in the UK.
and then a lot more in rescue rights one-off dividend? Gareth Stone, via email.
issues after the banking crisis. BP The vast majority of buybacks are a
(BP.) has spent approaching £30 billion total waste of money. Research from Russ Mould replies: Your wish is our
on buybacks , yet the shares stayed Morgan Stanley as explained in your command so please watch this space for
below the buyback prices for most of April 2009 article shows that. Yet most a detailed analysis of firms with an
the time even before the Gulf of commentators love them. Have they excellent record of dividend growth
Mexico disaster, and the buybacks pro- ever studied – as Shares clearly has – coming soon.

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54 Shares | 10 February 2011

100211 P55 INDEX 8/2/11 5:24 pm Page 55

Companies Index

104 companies in this issue

Abbott Laboratories (ABT:NYSE) 50 NYSE Freeport-McMoRan Copper 8 NYSE Rathbone Brothers (RAT) 50
& Gold (FCX:NYSE)
Advanced Medical Solutions (AMS) 18 Aim Reliance Industries (RIL:BSE) 6
French Connection (FCCN) 50 Bombay
ADX Energy (ADX:ASX) 6
Sydney Gartmore (GRT) 12 Renew (RNWH) 7 Aim

Amerisur Resources (AMER) 15, 18 Aim GGG Resources (GGG) 13 Aim Royal Bank of Scotland (RBS) 24

Aminex (AEX) 26, 43 Aim GlaxoSmithKline (GSK) 30 RSA (RSA) 43

Ark Therapeutics (AKT) 8 GoIndustry-DoveBid (GOI) 20 Aim SABMiller (SAB) 6

ARM Holdings (ARM) 30 GoldStone Resources (GRL) 13 Aim Sainsbury (SBRY) 4, 38, 39, 40
ASOS (ASC) 15, 19 Aim Grafton (GFTU) 10 Sandvik (SAND:ST) 4
Stockholm
BP (BP.) 4, 6, 54 Gulfsands Petroleum (GPX) 6 Aim
Sanofi-Aventis (SAN:PA) 12 Paris
Brooks Macdonald (BRK) 19 Aim Hardy Oil & Gas (HDY) 6
Siemens (SIEG:DE) 50
Burberry (BRBY) 4 HMV (HMV) 6
Frankfurt
Character (CCT) 19 Aim Hydro International (HYD) 20 Aim
SIG (SHI) 10
Charlemagne Capital (CCAP) 19 Aim Ideal Shopping Direct (IDS) 20, 21 Aim
SKF (SKF-B:ST) 4
ClearDebt (CLEA) 15, 19 Aim Immunodiagnostic Systems (IDH) 50 Aim Stockholm
ClearStream Technologies (CTN) 20 Aim JD Sports (JD.) 9 Sports Direct (SPD) 9
Croda (CRDA) 4 JJB Sports (JJB) 9 St Ives (SIV) 34, 35
Cyprotex (CRX) 20 Aim Johnson Matthey (JMAT) 4 Tesco (TSCO) 4, 38, 39, 40, 41
Dairy Crest (DCG) 4 London Stock Exchange (LSE) 15, 18 Thorntons (THT) 39, 41
db x-trackers FTSE All Share 32 ETF Low & Bonar (LWB) 4 Titan Europe (TSW) 4, 15, 22 Aim
Delta Airlines (DAL:NYSE) 4 NYSE Majestic Wine (MJW) 15, 21 Aim Titan International (TWI:NYSE) 22 NYSE
DP Poland (DPP) 24 Aim Marks & Spencer (MKS) 39, 40, 54 Toyota (7203.T) 4 Tokyo
DQ Entertainment (DQ) 26 Aim Metroelectric (METP) 27 PLUS Travelzest (TVZ) 25 Aim
DQ Entertainment 26 Microsoft (MSFT:NDQ) 30 NDQ Travis Perkins (TPK) 10
International (DQE:BSE) Bombay
Minera IRL (MIRL) 15, 21 Aim Tricorn (TCN) 22 Aim
Electrocomponents (ECM) 13
Morrison (MRW) 4, 38, 39, 40, 41 TUI Travel (TT.) 25
Epistem (EHP) 20 Aim
Mulberry (MUL) 4, 15, 22 Aim Tullow Oil (TLW) 26, 27
Eros International (EROS) 26 Aim
Nature (NGR) 22 Aim Unilever (ULVR) 4
ETFS Agriculture 39 ETF
Next (NXT) 4 United Business Media (UBM) 7
£ DJ-AIGCI (AGAP)
Obtala Resources (OBT) 13 Aim Velti (VEL) 18 Aim
ETFS Copper (COPA) 8 ETF
Ocado (OCDO) 40 Vitec (VTC) 7
ETFS Corn (CORN) 8 ETF
OCZ Technology (OCZ:NDQ) 18 NDQ Volvo (VOLV-B:ST) 4
ETFS Short Cotton (SCTO) 44 ETF Stockholm
Oxford Biomedica (OXB) 12
Fairpoint (FRP) 19 Aim Wessex Exploration (WX.P:PLUS) 27 PLUS
Peninsular Gold (PGL) 44 Aim
Fenner (FENR) 4 Whitbread (WTB) 24
Plethora Solutions (PLE) 27 Aim
Fidelity Moneybuilder UK 32 Fund Workspace (WKP) 24 Aim
Polar Capital (POLR) 22 Aim
Fosters (FGL:ASX) 6 WPP (WPP) 7
Sydney Premier Foods (PFD) 6
Xstrata 8, 44

Shares | 10 February 2011 55

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