Friday tips round-up: Invensys, Shaftesbury and Pennon

30th Nov 2012 06:41

Tempus in The Times writes that long-suffering shareholders in Invensys will be celebrating the near-100p rise in the shares, up another 25p to 305p last night, since the company announced the £1.7bn sale of its rail communications business.Shorn of rail and the pensions liability and with £400m or so of cash in the bank to fund expansion, analysts have had to take a closer look at what is left in Invensys. About 80% of the remaining business is in operations management, the rest controls. The company, previously dependent on large projects with the danger of these going awry, will henceforth be a provider of software and controls for industrial businesses, with about a third of the revenues going to oil and gas and utilities and power.Barclays Capital has done some preliminary work on the financial year starting next April, when the rail deal will have been done. It sees sales of about £1.86bn and pre-tax profits of £164m. This suggests an earnings multiple for the year, stripping out the special dividend from the rail sale, of about 14. Aveva, the software producer that is the closest comparator, is on about 20, excluding its cash pile. Investors keen to recognise a profit can do so, but Tempus thinks there is further upside in the Invensys price.Tempus says that those who queried the 'Olympic effect', and doubted whether the Games would provide a long-term boost to the London economy should ask Shaftesbury. The property company, which is entirely focused on prime locations such as Covent Garden and Soho in the West End, says that although demand in the summer was soft, it has picked up strongly since.Shaftesbury is for the patient investor and provides few surprises. The company resolutely refuses to move out of its home territory and instead gradually makes small purchases as these come on the market. Adding to a portfolio worth more than £1.8bn, it spent only £44m in the past financial year.Net assets per share, though, rose by 7.6% to 498p in the year to end-September, with a 5.8% rise in the second half. Rental income grew by 2.5% on a like-for-like basis, and the reversionary potential, the difference between current rents and what these would be on the open market, rose by a whopping 29%, indicating strong growth from rental income in future. Total dividends are up 6.7% to 12p. The shares stand on a 10% premium to net assets, one of the highest in the sector, which suggests no rush to buy, but they remain a good long-term bet.Questor in The Telegraph writes that utility group Pennon has seen its shares plunge in recent weeks - hit by the double whammy of regulatory uncertainty in the water sector and a profit warning from its Viridor waste unit.Yesterday's interim results were in line with guidance from the recent warning. Weakness in Viridor was offset by strength at its water business. Group pre-tax profits rose 3.7% to £111.1m. Profits at South West Water rose 10%, with Viridor's profit sliding 27%. The interim dividend was raised by 6.6% to 8.76p and will be paid on April 4th next year. This is in line with the group's policy of raising the dividend by 4 percentage points higher than inflation in the current regulatory period. The regulatory period runs to 2015 - and there is uncertainty after that with regard to the Ofwat regulatory regime. Still, Questor suspects a sensible compromise will be reached before the situation has to be referred to the Competition Commission. It is in every party's interest to sort this out.Questor considers the shares are once again a buy despite regulatory uncertainty, as South West Water is performing strongly and Viridor offers unregulated future growth as the energy-for-waste plants come on line. The falls mean that the shares are now yielding an attractive 4.6%, rising to 4.9%. "Trading on a 2013 multiple of 14.2, falling to 13.3 next year, the shares are a 'buy'."Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.CM