Friday tips round-up: Resolution, Invensys and Capita

16th Nov 2012 06:45

Tempus writes that it is assured that yesterday's trading statement from Resolution is not a 'kitchen sink job imposed by the Chief Executive-designate Andy Briggs, appointed three months ago. It should have no effect on the 21p a share annual dividends that provide the shares with a stonking nine per cent yield. But news of the cost overruns was enough to clip Resolution shares by 9.5p to 230p. They relate to the acquisition of Axa's UK life business more than two years ago, where integration will require an extra £35m of IT costs. Further integration costs will run to the "low tens of millions of pounds" over the next year. In addition, outsourcing of much of Resolution's back-office functions, costed at £250m, will come in at an extra £30m. The third-quarter figures were a mixed bag. The company has taken the axe to its UK operation, which is, in consequence, in good shape. Provisions taken on the underperforming German business, whose future is under review, cut the embedded, or underlying, value of its policies by £50m to £100m, from £1.2bn at present. The international side will focus on more attractive markets such as Hong Kong and China and cease to write policies for Japanese customers. Likewise, the Lombard business will focus on high-net-worth individuals in China and elsewhere in Asia. It will be a slow process. The sole purpose of holding Resolution shares, therefore, is that safe dividend yield.Tempus writes that rather like another perennial takeover candidate, Smiths Group, Invensys is seen as a group of disparate businesses that could easily be unbundled. Its rail side, which provides signalling equipment, is seen as the most attractive to buyers. This is not entirely fair: some of the controls software designed by the group is useable in several divisions. But the main driver for the shares, over and above the odd profit warning, remains takeover speculation.The dividend is generous, though, up 6% to 1.75p. The shares sell on about 10.5 times earnings. The company, Tempus believes, will one day be taken over, which is why it is on Tempus' list of tips for the year. But this will probably not happen before the year end. Questor in The Telegraph writes that in an upbeat statement, outsourcing group Capita confirmed this week that it expected organic growth of 3% this year. This actually implies a pick-up in activity in the second half. In 2011, like-for-like revenues fell by 7% and they were flat in the first six months of the current year. So, Questor infers that organic growth in the second half will come in at about 6%. Paul Pindar, Chief Executive, told Questor he is upbeat on prospects for 2013 and sees organic growth hitting 6% over the course of the year. The analyst community is split on their view of Capita's prospects. Of the 24 City scribes covering the shares, nine say buy, eight say hold and seven say sell. The average price target of the 12 analysts monitored by Bloomberg is 756p, just 5% above the current share price. Questor is now reassured that growth is coming through - and is more in the bull camp than the bear. This column has had a hold rating on the shares for some time but now feels more confident about the company's prospects. Therefore, trading on a 2012 earnings multiple of 13.4 times falling to 12.8 and yielding a prospective 3.5% next year, the rating is upgraded to "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