Tuesday tips round-up: Catlin, Babcock and Majestic

15th Nov 2011 07:14

On first sight insurance group Catlin has had a tough third quarter, seeing losses rise from $534m to $670m on the back of flooding in Denmark and Thailand and Hurricane Irene which swept through the Caribbean, the US and Canada back in August.The Times's Tempus, however, notes the guidance in Catlin's management statement from Chief Executive Stephen Catlin when he writes "We believe that fundamental changes in the marketplace are on the horizon as a result of the series of catastrophe losses, several years of falling rates for many classes of business, the challenging investment environment and the increasing strain on some insurers' and reinsurers' balance sheets."This implies significant repricing of risk and consequently higher profits for any company with the capital to cover the premiums. Catlin is definitely in the business of raising more capital, perhaps $500m, notes Tempus, and interestingly, the management report also said premium rates during the third quarter were up 10.5%. Despite falling back slightly yesterday (by 0.71%) Tempus believes Catlin is a buy.The Independent's Sharewatch column runs the rule over engineering firm Babcock International which had a sterling first half of the year, seeing profits up 46%. The drivers for growth have been the South African mining sector needing new equipment on the back of high commodity prices. Babcock's outsourcing business also benefited from the current need in the public sector to cut costs. Sharewatch notes that defence, a crucial part of Babcock's business, has had budget cuts in the UK. Nevertheless, it is well placed to win new orders especially with commodity prices remaining at such high levels and so, is a definite buy.The Telegraph's Questor column takes a long hard look at Majestic Wines. On the surface, a rise in pre-tax profits of 20% and like for like sales up 2.7% for the six months to the end of September looks enticing. However, not all is rosy in Majestic's garden. Questor points out like for like sales in the most recent six week period were down 1.1%, suggesting a slowdown is beginning. In addition, Majestic is already trading at 15 times earnings. For that reason Questor suggests leaving Majestic out of your buy list.BS