Wednesday tips round-up: Chemring, KCom, Cranswick

28th Nov 2012 06:34

"About the best news from Chemring Group's latest trading statement was that there wasn't any more bad news," wrote The Times´s Tempus column on Wednesday morning. That came after the outfit´s latest profit warning, on November 1st, which was its fourth over the past year or so and led to a potential bidder, Carlyle Group, walking away. The latest update rather suggests that the board, including Mark Papworth, the new chief executive, spent the past three weeks or so trying to find something positive to say. Amongst the company´s ills is the scarce forward visibility for US defence, ahead of the resolution of the "fiscal cliff." Likewise, defence procurement in Britain and on the Continent is going to be held back. Furthermore, a Middle East client has had an export licence delayed because of the Arab Spring. "I suspect this is the nadir of Chemring's fortunes, but it is hard, in the absence of any further bid activity, to see much catalyst for improvement. A speculative punt, no more," Tempus adds.The old Kingston upon Hull telephone exchange, separate from the rest of BT for obscure historical reasons, continues to chug along in its monopoly space, giving the city a quality of broadband and fibre-optic service that many elsewhere would envy. But the rest of Kcom Group, which provides business communications to larger corporates and public bodies, is hitting some inevitable headwinds. As well, decisions on next year's payment will have to await the triennial review of the pension fund next spring. At the present level, the shares sell on about ten times' earnings. The reckoning is that, in due course, the company will be split up and the business services side sold to one of those bigger players. Those investors who have held on from when it was a penny share will want a better return. Still, worth holding for that, and the yield, Tempus believes. The soaring price of grains have been having their impact on the entire food chain, as they are the basic feed stock of animals such as pigs. Pork products group Cranswick had therefore been seeing cost inflation - and that's why the shares were weak of late. However, this week's update showed Cranswick was able to pass on some of the costs to supermarkets - sending its shares up 10% on Monday. One of the group's competitors, Dutch group Vion, had also been experiencing financial difficulties and put its UK business up for sale last week. The business has a number of factories across the UK, but is based in Livingston in Scotland. While the future of its competitor is uncertain, Cranswick is in a strong position to win new business while this rival sorts out its woes. The shares are trading on a March 2013 earnings multiple of 10.3 falling to 9.8, and yielding a prospective 3.8% rising to 4%. The valuation looks pretty full at this level so The Telegraph´s Questor team maintains a hold.Profit warnings usually come in threes, the old stock market saying goes. This implies that Chemring, which has issued two this year, may have another one up its sleeve. Even so, shares in the defence group already appear to be discounting Armageddon.There is no guarantee that the group will not suffer from government budget cuts for many years to come. However, The company´s new Chief Executive, Mark Mr Papworth, will present his initial views on Chemring's future and his operational priorities at the full-year results presentation on January 24th. This should be a positive catalyst for the shares. The company is expected to remain profitable and there is no indication yet of a potential dividend cut. Questor thinks that the valuation of the shares is particularly undemanding - despite the substantial risks that could lie ahead. They are now a buy for the more speculative part of your portfolio - although investors should be prudent with the amount of cash invested, the newspaper adds.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.