BP stays on track through wise investment and share buy-backs
Jun 4 2007 By Andrew Miller, The Journal
Bp - BP's fourth-quarter trading statement revealed that final-quarter production overall will be down year-on-year and marginally lower than expected.
However, we expect final-quarter results to be strong. Exceptional charges are forecast at the beginning of the year, and overall non-operating items are expected to amount to a pre-tax gain of around $2.0bn, reflecting gains on upstream disposals.
Overall, we continue to believe that BP is on track with its strategic targets, with controlled investment and surplus cash-flow being used for significant share buy-backs. BP remains our preferred investment in the sector, given its better medium-term fundamentals.
Vodafone - We continue to be positive on Vodafone, and are impressed by the company's clearer focus on cost control, competitive pricing and product in its core markets, and growth potential from emerging markets. Vodafone has implied that it may bid for Hutchinson Essar of India, and having held talks with the wireless operator, Vodafone's CEO Arun Sarin has stated that a bid could be "some weeks away". The strategic and financial logic behind Vodafone increasing exposure to India is compelling, with market growth potentially huge. The main concern for investors would be that Vodafone could overpay for Hutchinson, and dilute earnings in the early stages of the deal.
Man Group - Man Group's full-year figures met with market expectations and showed strong underlying growth in new assets and fee income. With fund inflows remaining robust, and with AHL recovering strongly from its 2006 trough, we feel the share price has further to go and are raising our fair value estimate to 635p. The group is a high-quality business and a market leader in both the alternative investment management and futures broking businesses. We forecast good growth in both divisions, with market volatility at low levels. Futures should benefit in increased market volatility.
A key issue for Man Group is that the market is reluctant to ascribe much value to the group's performance fee income. However, it has never failed to earn a performance fee in any year and the group still looks attractively valued, even after stripping out performance fees from profits.
The recent recovery of AHL provides reassurance. We view the recent acquisition of Refco as a positive, and still think a spin-off of the Man Financial brokerage division is possible and could unlock further value.
National Grid - National Grid's strong full-year figures and positive strategic plans should provide reassurance to investors. Adjusted pre-tax profits rose 11%. Earnings rose 10% and the dividend was raised by 10%, exceeding the group's commitment of 7% growth per year. In the UK, the group has reached its £35m cost-cutting targets in Gas Distribution one year ahead of schedule. The group unveiled plans to increase investment in its UK and US networks from £2bn to £2.5bn per annum, through to March 2011. We see scope for the group to continue to increase its earnings and cash flow through investment and efficiencies. We remain positive on the stock.
* Andrew Miller is regional centre head and investment manager at Gerrard Investment Management.
Gerrard is regulated by the Financial Services Authority and is a member of the London Stock Exchange. Share prices and the income from them can go down as well as up. Readers are advised to seek professional investment opinion before entering into dealings in securities mentioned in this article, which may be unsuitable in their personal financial circumstances.
