Riding out the downturn

Published on Wednesday 10 June 2009 21:09

Scrutineer

Halfords

343.5p -2p

ON A roll in a recession – that's the story of resilience at car maintenance and bicycle retailer Halfords, a narrative that the stock market has anticipated as the downturn has taken shape.

Halfords has announced an underlying annual pre-tax profit of 92.4 million, in line with previous guidance from the company of 92m-92.5m. With blood spattering a lot of the high street, it is a decent result indeed.

The group has received a twin boost: people are cycling more to address financial strains and for environmental reasons; and people are putting off new car purchases as money is tight and employment is uncertain, and maintaining their existing vehicles instead.

Such a backcloth is meat and drink (not to mention car oil) to a company like Halfords.

And not forgetting, Halfords is on the right side of the road to benefit from government pro-cycling schemes such as Cycle2Work.

Such positive factors had been recognised by the stock market even before yesterday's resilient figures from the company.

Halfords shares have shot ahead 23 per cent in the past year, outperforming the general retailers' index by a third, even if they closed slightly down yesterday on some profit-taking.

Further upside may be possible if Halfords cracks the central European market.

Even though the half-a-dozen pilot stores in Poland and the Czech Republic are still in the red to the tune of a few million pounds, the group says it is still committed to reinforcing this beachhead in central Europe to more than 150 stores over time.

The public's penny-consciousness in these straitened times is shown by the fact that in-car technology, the most discretionary-spend part of Halfords' business, was the weakest in the latest trading year.

Sales volumes for sat-nav systems, for instance, were broadly flat, but revenues were hit by a 20 per cent fall in prices as consumer demand faltered.

Compensating somewhat, Halfords has sold 80,000 Cycle2Work bikes since the scheme was introduced in 2005 – 34,000 of them in its latest trading year.

Despite the shares' outperformance recently, there is enough in the latest numbers – and potential future growth prospects overseas – to suggest the stock might still have legs. Buy.

DON'T breathe too heavily or the gossamer wings might disappear.

But the stock market optimism trickle continues to burble along. In April, Merrill Lynch said we had reached some sort of watershed in the stock market gloom.

Merrill said then that its latest monthly survey had found fund managers were more optimistic about global economic growth than at any time since early 2004.

The bank said the two main factors were the recovery of the banking sector and the appearance that the Chinese economic locomotive was not faltering after all.

Since then we have had noticeably more positive manufacturing and services sector data (even if sometimes it has only been the pace of decline slowing markedly).

Meanwhile, earlier this week Standard Life Investments said it believed the commercial property market might have bottomed out and that recovery might be afoot under the surface.

Now fund management giant Fidelity is coming over quite optimistic, reminding us that today is the 100th day since the FTSE All Share index bottomed on 3 March.

Since then the index has put on 26.4 per cent. Fidelity points out that there have been clear winners and losers in that period.

While 54 stocks have recovered by more than 100 per cent, 51 stocks have seen their share price continue to fall.

Clearly this recovery is not in the rising-tide-lifts-all-boats category. But it is there all the same.

Fidelity says its own strong exposure to recovering financial stocks has stood it in good stead over the past three months or so, alongside its exposure to consumer-related stocks, which are traditionally affected by cyclical recovery.

Anthony Bolton, president of investments at Fidelity and an acknowledged City guru, said he had believed for some time that financials, which led us into the bear market, would be one of the sectors to lead the recovery.

Bolton says: "Although markets have risen significantly in the past three months, triggered by valuations, I believe many investors have missed this recovery, and cash positions remain well above average.

"I think the economic data will continue to improve over the next few months and this could provide the backcloth for a further significant rise before the market consolidates."

This all remains short of a groundswell of stock market optimism. But the more positive trend in sentiment is gaining traction.

Jarvis takes on its share of building society deals

SMALL BUT BEAUTIFUL

ONE of the UK's largest building societies has chosen Jarvis Securities to provide its share dealing services.

Jarvis yesterday revealed that the five-year deal, which is due to begin in the third quarter of this year, is expected to increase Jarvis's assets under administration by 19 per cent.

The unnamed building society was tempted away from Jarvis's "largest commercial services competitor", the firm said.

Based on current trading, the building society deal is expected to increase the number of underlying client accounts managed by Jarvis by more than 17 per cent.

Jarvis's board anticipates that the agreement will have a "material positive impact" on the company's financial performance in 2010.

The "white-label" system, which will be run by Jarvis but marketed under the building society's own branding, was awarded through a "competitive process".

Andrew Grant, chairman and chief executive of Jarvis, which has a market cap of about 22 million, said: "Continued contract wins together with the significant upsurge in our own retail trade volumes and the improving outlook for interest rates support our cautiously confident outlook for Jarvis for the remainder of this year and next."

Bowleven bounce back bolstered by double value shares issue

SCOTS STOCKS

BOWLEVEN, which saw shares drop 8 per cent when it raised 71 million through a major share placement on Tuesday, bounced back yesterday as the market digested its new strength.

The Edinburgh-based oil explorer was viewed as a distressed seller in its attempts to find a farm-in partner for an offshore Cameroon field but now has the firepower to dig appraisal wells on its own – after issuing so many shares that it will more than double in value when the new shares begin trading. Shares rose 4.4 per cent to 70.5p.

Oil companies broadly rose across the board after crude hit a new high for 2009 of $71 a barrel on Tuesday night.

Dana Petroleum rose 4 per cent in early trading. Shares later settled to close up 19p at 1,317p.

Ramco Energy fell after posting a 3.4m loss for 2008 on Tuesday, dropping 3 per cent to 65p.

Aberdeen Asset Management rose 2p to 136p as it announced it had sold its private equity business to management, but was retaining a significant stake in the venture.

Optos, the retinal scanning company which has risen strongly since its interim results, saw profit-taking yesterday, sending its shares down 4p, or 5.5 per cent, to 69p.

Finally, I-Design, which helps banks put advertising on ATMs, added a penny to close at 13.5p.

Bryan Johnston of Brewin Dolphin

ONE TO WATCH

Braemar Shipping

355.75p +10.25p

Scotsman says BUY

BRAEMAR Shipping Services provides shipbroking, consultancy, technical, logistics and other services to the shipping and energy industries.

Braemar Shipping's share price has been badly mauled over the past 18 months. However, its trading statement in May served to sustain a developing recovery. The group's rating had been hit by concern that a marked slowdown in international economic activity would exact a high price. Certainly, the global downturn obviously took its toll on demand for raw materials and, as a result, there were sharp falls in freight rates, although things have stabilised of late.

On the other hand, the group's non-broking activities have continued to perform well and represent perhaps a quarter of overall operating profits.

It is perhaps not fully appreciated that the vast majority of international trade is transported on water. If, like me, one shares an optimism for the longer-term economic prospects, centred on the ambitions of the likes of India and China, it is logical to assume the sort of services provided by Braemar Shipping will benefit. Braemar is not particularly dependent on any single company or industry, with clients including major oil concerns, commodity groupings and industrial and chemical groups.

Although Braemar's share price has recovered, the stock is still on a prospective dividend yield of about 7 per cent and on a forward price earnings ratio of perhaps seven. Currency is a factor and the recent weakness in the dollar may have an impact in the months ahead but, supported by a solid balance sheet, Braemar does look pretty shipshape and well placed to respond if the global economy starts to pick up next year.

&#149 The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.