Wednesday tips round-up: Capita, CRH and Cineworld

14th Nov 2012 06:42

Capita, which has 68 per cent of its existing work pipeline coming from the public sector, says that the expected public sector outsourcing work was beginning to flow through at last.The company is back to organic growth, a 6% rise in the second half expected to contrast with a flat outcome in the first, with 7% achievable next year. Tempus in The Times says that whether that will satisfy the doubters is questionable; Capita has always been a stock that has attracted scepticism. But the rate of contract flows in the third quarter was impressive. In all, £400m was awarded and £300m from the pipeline abandoned as being unlikely to arrive; but that pipepline was little-changed at £4bn, which means potential new work arrived at a higher rate than it could be won. This may look academic, but such work flows are one of the few ways to value the outsourcing sector.Capita shares have been erratic performers this year. Down 5p at 722p, they sell on about 14 times' earnings, or about in line for the sector, but merit only a "hold" at this level.Tempus writes that building products provider CRH is taking a cautious view of prospects for continental and American construction markets by identifying another €450m of cost-cuts between now and 2015 ? and third-quarter figures, though affected by a couple of one-off factors, give an idea why. In Europe, a 5% sales decline in the first half accelerated to 7% in the third quarter after difficult trading in the Netherlands and Poland. In the US, CRH was lapping a mild winter last time and a strong performance that continued into the spring and saw some work pulled forward from the third quarter. So sales were up by 8% in the first half but only 1% in that quarter, while superstorm Sandy will mean disruption, and a sales decline, in the last three months of the year. Across the group, then, sales were off by 3% in that third quarter.Although reconstruction work will start after Sandy next year, with volumes across the group off by 30% since the peak, clearly even the accelerated cost-cutting will not bring CRH back to where it was. With the uncertainties of the US fiscal cliff and further disruption in the Eurozone, a price-earnings ratio of 16 for next year does not suggest much room for any upside.Questor in The Telegraph writes that Cineworld reported that the London Olympics hit cinema attendances, with total admissions in the 19 weeks to November 8th down 4.1%. Film distributors in the UK - quite wisely - decided not to release any major titles during the Games. This goes to demonstrate that a cinema is only as good as the releases on offer - and in the run up to Christmas we have some strong offerings such as the last film in the Twilight saga and a film of JRR Tolkien's The Hobbit. However, the release schedule is not the only factor that could grow earnings over the next few years. Cineworld is expanding. It plans to open about 25 new complexes by 2017, which analysts reckon could boost earnings by up to 40%. Three are scheduled to open next year - in St Neots, Wembley and Gloucester. The cinema group has also scrapped online booking fees, with a view to growing its MyCineworld loyalty scheme. This appears to be going well, although no data on MyCineworld was released in the statement.Group cashflow is strong and the dividend remains attractive at 4.8% rising to 5.1%. The shares are trading on a December 2012 earnings multiple of 12.2, falling to 11.4 next year. After yesterday's strong performance, the shares are just a touch below their all-time high in September of 252p apiece. Last named a buy in August at 233p the shares are a "hold" for now on valuation terms. 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.CM