Wednesday tips round-up: Homeserve, Halma and Lamprell

21st Nov 2012 06:43

Tempus in The Times says that reading the news headlines and you might have expected Homeserve to have ceased to exist as a viable business. The provider of domestic cover for broken boilers, blocked drains and burst pipes, which was forced to suspend sales and marketing cold-calling last autumn, was fined 750,000 pounds by Ofcom and is the subject of an investigation by the Financial Services Authority into mis-selling that is likely to result in a hefty fine.The rate of business retentions, a key metric for insurers, fell below 80% in the first half. Yet operating profits came in 12% higher at £27.1m in the first half to the end of September. Much of this represents the decision to buy out the outstanding holding in Doméo, the French operation, in December; but without this, profits would have been only slightly lower. In truth, HomeServe has such a huge tilt towards the second half, when people tend to think about their boilers, that the full-year figures are a better guide. UBS is looking at a pre-tax figure down from a peak of £126m in 2011-12 to £107m this year and perhaps £92m in 2013-14, although this will depend on the rate of progress from the UK business.This suggests that much of the damage will be contained. The halfway dividend is held at 3.63p, giving the shares the support of a 5.2% yield, at last night's 248p close. They sell on almost 12 times' next year's depressed holdings. Prospects for the international side remain good, with few signs of reputational damage there. However, Tempus would not be queuing up to buy them this side of an FSA ruling.Tempus writes that Halma, a specialist industrial products and sensors maker, is focused on areas that are either benefitting from tighter regulation or are not the subject of cost-cutting when times are hard. It has raised dividends by 5% or more for 33 years and has increased revenues and profits in 37 out of the past 40 years.Both revenues and pre-tax profits before one-offs were up 6% in the first half to the end of September, to £298.1m and £60.8m, respectively, and the halfway dividend is raised 7% to 4.06p, so that record looks safe for now.Within that, the industrial safety division achieved a return on sales of 24.5%, among the highest that the company has recorded in any business. The shares are up by 14% since the start of the year and sell on about 16 times' earnings. A high rating; but one would not want to bet that this progress cannot be maintained.Questor in The Telegraph says oil rig-maker Lamprell issued its fifth profit warning of the year on Monday - which counter-intuitively sent the shares up 17%, with investors hoping that all the bad news was now out. Lamprell warned that this year's losses will be seven times greater than previously expected at $105m (£84.5m). This includes bad debt of $8.1m, increased advisory fees because of the company's woes of $4m and additional losses in construction of wind farm installation vessels for Norwegian group Fred Olsen. This removed uncertainty that had been dogging the shares since a series of accounting and management cock-ups emerged. Pricewaterhouse-Coopers has trawled the books and hopefully this statement means a line can be drawn under the company's issues and it can be rebuilt. The shares are down by 70% in the year to date and a number of brokers upgraded their rating on the shares to 'buy' after the latest warning. They are banking on hopes that all the bad news had been 'kitchen sinked' and released into the market. Investors looking for a punt may wish to speculatively buy some of the shares and wait for a recovery. However, Questor thinks the road back to credibility may be long and challenging. Therefore, Questor keeps a 'hold' rating. CMPlease 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.