Sunday shares tips: Centrica, Anite, Rolls Royce

10th Jun 2012 16:54

Shares of Centrica were named as a tip of 2012 after slumping last year following a profit warning. The shares have outperformed the wider market, rising 8 per cent compared with the FTSE 100's 2 per cent fall. Questor expects this outperformance to continue, as price cuts earlier this year appear to have eased the political pressure on the sector. Fears of political interference were a significant part of last year's 13 per cent share price fall. Higher wholesale power prices also appear to be making up for the mild winter. Centrica continues to become more "vertically integrated". This means it is generating more of the energy it sells itself, which protects its profits from swings in commodity prices. On Friday, Centrica reached a milestone in its Lincolnshire 270-megawatt offshore windfarm project, by completing financing of £425m for its construction. Centrica has a 50pc interest in the project, with the rest shared between Siemens and Dong Energy. An exploration partnership with Norway's Statoil to look for oil in the UK and Norwegian North Sea has also been extended until June 2013. After last year's falls, Centrica shares are yielding a very attractive 5.3 per cent, rising to 5.7 per cent. The cash-generative nature of the business means this looks secure and it is covered by earnings 1.7 times. The valuation is also cheap by historical standards, with the current earnings multiple being 11.747, falling to 10.6 writes the Sunday Telegraph´s Questor team.When share prices are volatile and savings rates are low, it can be hard for investors to know where to put their money. International Public Partnerships, an infrastructure fund, provides an attractive option, offering generous dividends and predictable growth in an uncertain world. The group is also raising £180million on the stock market, offering new shareholders an opportunity to buy stock at an attractive price. Over the past five and a half years, the company has delivered a total return to shareholders (combining the increase in the share price and dividends paid) of 54 per cent - about ten per cent a year. Looking ahead, the fund aims to deliver annual dividend growth of 5.25 per cent and total returns to investors of eight to nine per cent a year. The fund is a bit more risky than its peers because it often becomes involved in projects in their earliest stages, but the potential rewards are higher because, if projects go according to plan, their value increases substantially once they are completed. The fundraising closes on Friday and INPP shares will probably drift towards 116.25p between now and then. The stock was above 120p before the fundraising was announced. It is currently 117.25p, but will almost certainly gain ground in the coming weeks so now is a good time to buy, says The Financial Mail on Sunday´s Midas column. The group has already said that it will pay a 6p dividend in 2012, putting the stock on a yield of more than five per cent. For investors in search of a decent income and some capital appreciation, INPP is a solid, long-term bet.Mobile phone testing company Anite has quadrupled in value since Midas Extra recommended the stock in January 2009, but the business is growing so there is still mileage in the shares. Last month, chief executive Chris Humphrey said profits for the year to June would be higher than expected after a particularly successful performance from the group's handset division, which tries out new technology for the manufacturers of mobile phones. The Slough-based firm also tests phone networks to see if they are working properly and provides travel firms with IT systems to let them offer online booking services. Anite's results will be revealed in early July and brokers expect a 70 per cent surge in profits to almost £27million and an increase in the dividend from 1p to 1.2p. In January 2009, Anite shares were 28p and Humphrey had just been appointed. Today the stock is 115.5p. Investors who bought three years ago may be tempted to sell some shares, but they should not sell out completely as this company has consistently surprised on the upside. The shares should continue to rise, says The Financial Mail on Sunday´s Midas column.Rolls Royce is structured into four divisions: Aerospace, Defence Aerospace, Marine and Energy. The company experienced some rare negative headlines after a fleet of new Qantas A380s was grounded after an explosion in a Rolls engine. The secret to Rolls' business model is in the aftercare market. As the company's installed base of equipment grows, the market for parts and maintenance also grows. There are high barriers to entry in its business because of the breadth of Rolls' intellectual property and its history of innovation. Because of this reputation, its order book stood at £62.2bn at the end of last year. Growth in the installed base is important to keep profits growing. Currently, this stands at more than 50,000 engines. However, Rolls is operating in a number of growth markets. There is a global structural shortage of power which Rolls is ideally placed to service, and airline fleets in emerging economies are growing rapidly. It was strong demand for aircraft engines which propelled pre-tax profits above £1bn last year. The shares are not going cheap, trading on a December 2012 earnings multiple of 14.3 times, falling to 13. However, because of the aftermarket effect, profits are likely to continue to rise for many years. Quality doesn't come cheap. Questor says buy.ABPlease 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.