Investors Chronicle

July 11, 2014 6:36 pm

Highlights from this week’s Investors Chronicle

Buy: Tungsten Corp (TUNG)

The shares look too cheap given the electronic invoice settlements group’s impressive growth rate since it floated last year, says John Adams.

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Investors Chronicle

The growth profile of Tungsten Corporation, an electronic invoice settlements business, was again on display with its full-year figures this week.

The company’s near start-up status – it only floated in October – means that it is still lossmaking. But progress is proving to be rapid.

In the year to April, Tungsten processed $152bn-worth (£89bn) of e-invoices – a 21 per cent jump. New clients keep on rolling in, too, with big names such as GE and Caterpillar signed in the period.

Tungsten is also making progress with its plans for invoice financing – specifically discounting – and has the funding to back this potentially lucrative business.

It bought its own bank last month (the UK arm of the First International Bank of Israel) and it is also working with Blackstone Tactical Opportunities to establish a special purpose financing vehicle with an annual funding capacity of $10bn-$12bn.

Broker Canaccord Genuity had been forecasting earnings per share of just 4.3p for 2015, but that is set to jump to 23.2p in 2016.

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Buy: Low & Bonar (LWB)

The company’s shares still trade on a modest 13 times earnings, while the benefits of its investment programme are yet to show through, writes Jonas Crosland.

Low & Bonar is finally starting to see the benefits of retiring chief executive Steve Good’s efforts to reshape the company. The specialist materials group remains on track to achieve targeted sales growth at least 3 per cent above eurozone economic growth, together with operating margins of 10 per cent.

At the half-year stage, margins rose to 5.9 per cent, from 5.5 per cent a year earlier. They would have been higher still without the strength of sterling against the euro and the dollar, which trimmed group sales by £2.5m. This was offset by growth across most areas, with the notable exception of flooring, where bad weather in the US damped demand.

Second-half trading is expected to show a further improvement, boosted by last year’s acquisition of high-tensile soil reinforcement specialist Texiplast, which usually generates 80 per cent of its profits in the second half.

A £26m factory built in China is also expected to become operational during 2016. This will help eliminate the so-called seeding costs – import taxes and transport – that the group currently pays to sell products in the country.

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Sell: Marks and Spencer (MKS)

Despite investment in its website, M&S is now considered inferior to its competitors in the world of e-commerce, writes Harriet Russell.

Improving group sales at Marks and Spencer were overshadowed this week when it revealed an 8 per cent drop in online sales during the first quarter. The dip follows an extensive £150m redesign of the retailer’s website, previously run by internet behemoth Amazon.

Back in 2011, M&S successfully wooed Laura Wade-Gery from rival food retailer Tesco to spearhead a new online campaign. But web sales were hit by the site’s increased complexity, which now plays host to editorial content and video features. Tellingly, only half of M&S’s six million regular online shoppers have registered with the new site.

Food sales remain strong, growing more than 4 per cent in the first quarter and accounting for more than half of group revenues, but clothes sales were only “slightly positive” and general merchandise revenue fell 1.5 per cent overall.

Shareholders reacted angrily at the company’s annual meeting this week, voicing their doubts over chief executive Marc Bolland’s capability to turn M&S around. But Mr Bolland was adamant that online trading would return to growth by November, considered to be the group’s peak trading season.

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Simon Thompson: Stamp of approval

A block of highly-prized Penny Blacks

Aim-listed Stanley Gibbons may have been around since 1856 – just 16 years after the first stamp, the Penny Black, was issued – but the company is not stuck in some bygone age.

The most famous name in stamps has been embracing new technology. Its branded online marketplace is set to launch later this year and is a great opportunity to exploit since internet sales accounted for less than 10 per cent of total revenues last year.

Importantly, stamps, rare coins and collectables continue to appeal to investors as an alternative asset class. It’s hardly surprising given the long-term returns they have been making over the years. For instance, a selection of the top traded 250 Great Britain stamps has produced a compound annual growth rate of almost 12 per cent over the past 12 years.

Chinese stamps are in particularly high demand, and Stanley Gibbons’ Hong Kong office is ideally placed to exploit this opportunity. It contributed total sales of £3.3m and profits of £700,000 in 2013. The relatively new office in Singapore represents an important element of the move into the Far Eastern market place, too.

The company’s finances are in rude health. Stocks at the end of March are in the books for £42m, to account for exactly half of net assets of £84m.

However, retail analyst Charles Hall at broker Peel Hunt believes that “the value of the stock is over £100m at current retail prices”. In other words, there is at least £58m of hidden value on the balance sheet. That’s a significant sum for a company with a market capitalisation of only £150m. If you mark stock to market value, the company is only being valued on a 10 per cent premium to book value.

Cost savings from the recent acquisition of Noble Investments, combined with decent underlying growth, are expected to deliver pre-tax profits from the combined entity of about £11.2m this financial year, rising to £13.3m in next fiscal year, according to Mr Hall.

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