Thursday tips round-up: Interserve, Electra Private Equity, IMI

29th Nov 2012 06:52

On the same day that Marks & Spencer announced an agreement with the trustees of its pension fund on how to pay off the deficit, the outsourcing specialist Interserve found a more innovative solution to the same problem. The company has transferred the rest of its portfolio of PFI assets, comprising its remaining stake in University College London Hospital and other public sector projects it was involved in, to its pension fund at a valuation of 55m pounds. This gives the fund a decent income from assets that are mature and don't belong on the balance sheet of a company such as Interserve. The company accompanied the deal with a reassuring trading update. Analysts have tended to worry about its exposure to the British construction market. Work is coming through, though, from a range of clients, to a value of 500m pounds in the second half of 2012 so far. The shares have risen sharply since the summer and sell on about eight times earnings, with the support of a 5.7 per cent yield. Hold, says The Times's Tempus column. Nobody could accuse Electra Private Equity of rushing things. Two of the investments it exited in the last financial year ? Amtico, the flooring maker, and Capital Safety Group, which makes harnesses ? have been part of the portfolio for, respectively, more than 16 and more than 13 years. This patience is appropriate from the granddaddy of the quoted private equity sector, a business that dates back to 1976. While some such companies trade at a heavy discount to net assets, partly because these are illiquid and cannot be sold overnight, Electra's discount has diminished. As well, the company says that the longer-term trend for investments is good, as banks are forced to raise extra capital. There is also talk that esure, the insurer in which Electra has a 10% stake, could float. That stake is in the books at only £19m; esure may be worth upwards of £1bn. Electra does not pay a dividend, so it is no good for seekers of income, but unless we are heading for some spectacular market cataclysm, that discount should narrow further, Tempus writes on Thursday. In its recent trading update, IMI said organic revenues growth in the year to date was 4% - or 6% including acquisitions and exchange rate movements. However, there was a slowdown in growth. There was no outlook for 2013 given in the statement. However, management said that second-half bookings momentum was similar to the first half at around 4%. This was down on last year on an organic basis, hit by lower activity in nuclear and IMI's "more selective approach to new fossil power projects in India and China". Some analysts trimmed estimates after the statement, but all in all the valuation is looking reasonable. The shares are trading on a 2013 earnings multiple of 11.7, falling to 10.7 in 2014. The prospective yield is 3.5% next year rising to 3.8%. The Telegraph's Questor team last said to hold the stock when the shares were at 991p in March. Since then the shares have been as low as 780p before rallying back to the level seen in March. There are still major questions about the global economy in 2013, but IMI's end markets should remain active, if not buoyant. However, the lack of clarity means that the shares must stay at a hold rating for now, Questor believes. 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.