Sunday share tips: Flybe, National Grid, OPG Power Ventures

9th Nov 2014 15:07

Regional airline Flybe´s fortunes are looking up as it nears a test on whether the new management is as good at growing the business as it has been in pruning loss-making activities. Its new chief executive Saad Hammad seems to be delivering on his promises after slashing 500 jobs and closing unprofitable routes. He also got out of a supply deal for pricy jets with Embraer and opened up new routes. Significantly, Flybe faces no competition on many of those new routes chosen by the ex-easyJet executive.A recent switch to BA´s Avios frequent-flyer programme should allow the company to attract more of the lucrative business-class spending. As well, the recent drop in the oil price will likely not have done its fuel bill any harm either. It remains to be seen however if a move into so-called white-label flying, operating short-haul routes for larger rivals, is successful. Hold, says The Sunday Times´s Danny Fortson in his ´Inside the City´ column.A drop in the effective interest rate faced by utility provider National Grid to 4.5%, on a debt pile of £21.7bn, drove a 12% increase in pre-tax profits for the six months to September, to reach £1.18bn. The company is a so-called "natural monopoly", owning and operating gas and electricty distribution networks for whose use it then charges. Its annual dividends track retail price inflation and the value of its gas and electricity network supports the share price. The latter increased by £1bn on its level of six months ago to reach to over £39bn. It is that large asset base, together with its steady revenue, which allows the company to finance the aforementioned level of debt , most of which is at fixed low rates.Furthermore, its recent agreement with the regulator on the prices which it charges means that there is visibility and stability for its earnings profile even over the longer-term. On 16.7 times forecast earnings the shares are trading at a slight premium to the likes of SSE and Centrica but the three companies are not perfect comparisons. So while as a ´guide´ utilities should change hands on a multiple of about 12 times earnings, what you are paying for in this instance is the certainty on income, hence the stock is a ´hold´, says The Sunday Telegraph´s Questor column.India based and London-listed OPG Power Ventures offers a way to invest in and profit from those companies operating in the energy starved sub-Continent. The outfit recently closed a deal to supply power to the Tamil Nadu Generation and Distribution Corporation on attractive terms, of 5.50 rupees per kilowatt hour until September 30 2015. It should thus have come as little surprise to see pre-tax profits jump 70% to £17.95m, on revenues which rocketed 78% to £98.8m for the year ended March. There are considerable risks attached however, linked to the price of coal, the firm´s main input, and potential weakness in the currency. The outfit has also embarked on a vast project for constructing power plants. Even so, the shares remain a "buy" says Questor.Empiric is looking to raise more cash and the investment thesis looks attractive for long-term investors. Back in June the firm raised £85m from investors, less than the between £110m and £150m which it had originally been aiming for. Nevertheless, it did manage to successfully float, unlike other firms, and most of the above funds have already been deployed or committed. The company, which specialises in high-end accomodation, is now in advanced negotiations to buy a further 15 properties valued at about £180m.Whereas such prospects might seem scary for investors in other sectors, in the case of Empiric such plans make sense. It is focused on upscale units, in a market which is still in short supply, and in top university towns where rents are growing more quickly than inflation. The company´s chief is an experienced hand too and the stock should deliver a decent mix of income and share price appreciation. Hence, "the current fundraising is worth a look, particularly for long-term investors," writes The Daily Mail´s Midas column.