Friday tips round-up: TUI, United Utilities, Micro Focus

23rd Sep 2011 06:33

Travel group TUI is on course for pre-tax profits of about £360 million for the year to the end of September, putting the shares, off 4% at 148½p, on a little more than six times earnings, which looks cheap. They have lost about 40% of their value this year, not helped by the upheavals at rival Thomas Cook. But given the limited visibility for next summer's season, the Times would not be in a hurry to buy now, even if an eventual bid from majority shareholder TUI of Germany will one day arrive.If your concern is the state of the global economy, then United Utilities, a company with a virtually guaranteed revenue base and a dividend yield in excess of 5% might seem appealing enough. That is not to say water and other utilities are exciting places to be, except when, as in the case of Northumbrian Water this summer, someone steps in and snaps you up for that guaranteed income stream. United has said it will raise dividends by inflation plus 2%, which equates to a dividend this year of about 32p, suggesting a yield of 5.3%. In today's markets, pretty attractive for the retail investor, the Times says.The Independent also looks at TUI and United.On valuation grounds TUI looks interesting at just 6.7 times 2011 forecast earnings while yielding 7.5 per cent. What's more, its majority German owner, TUI AG, should provide a floor for the price. Hold, the Independent says.At 17 times this year's forecast earnings, United shares are not so cheap. But the company's selling point is its yield. It's 5.2 per cent and UU is committed to growing the dividend at RPI inflation plus 2 per cent until 2015. Now look at the returns from cash (pitiful) and on trustworthy bonds, corporate or sovereign (also poor). Buy, says the Independent. Micro Focus International, the maker of software, has had a truly awful couple of years, since the creation of AMQ, a testing business, which proved to be a serious underperformer. The company was in talks with no fewer than four private equity firms earlier in the year, including Bain and Advent, but no agreement could be reached on price. It is still going to be a long haul; the shares, even on less than ten times earnings, do not look that appealing, the Times says. At nearly 18 times this year's forecast earnings - more than double the multiples that William Hill and Ladbrokes trade at - online betting group Betfair shares still look pricey. That partly reflects the fact the latter two are badly undervalued, and it could be argued that Betfair, which has been building a fixed-odds platform to add to its exchange, deserves some sort of premium. But not that much. Avoid, says the Independent.Airline easyJet is now expected to post pre-tax profits in the year to September 30 of £240m to £250m, up from previous guidance of £200m to £230m. Current consensus expectations stand at £220m - so upgrades are certain to follow. The low-cost carrier said it will pay its first dividend of 9p a share for the year - plus a special dividend payment. This one-off payment, plus the 9p annual dividend, is expected to amount to a very impressive 44p a share this year - barring any unforeseen circumstances. The cash return is good news - and Sir Stelios should be pleased with returns from his 38pc stake - but with continuing uncertainty over the economy, the shares remain a hold for now, says the Telegraph.The way to play any equity market fall is to buy quality, high-yielding shares - such as Scottish & Southern Energy (SSE), the UK's second-largest electricity producer. Yesterday's slide means the company is now yielding a particularly impressive 6.2% - and it is going to get even better over the next two years. The shares are trading on a current-year earnings multiple of 11.1 times, falling to 10 next year. Buy, says the Telegraph.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.