Expert View special: Panmure's 13 share tips for 2013

Panmure's share tips for 2013

Panmure reckons its top picks for 2012 rose by an average 46% last year, beating the 9% rise in the overall market (as measured by the Datastream Total UK Market index).

In all fourteen of its 17 New Year tips a year ago made money. The 2012 recommendations were: Enterprise Inns (ETI.L) +286%, Gable Holdings (GAH.L) +99%, Bodycote (BOY.L) +72%, Nichols (NICL.L) +60%, YouGov (YOU.L) +57%, Galliford Try (GFRD.L) +57%, Micro Focus (GFRD.L) +51%), Communisis (CMS.L) +45%, Hutchison China (HCM.L) +31%, Vphase (VPHA.L) +25%, WS Atkins (ATKW.L) +23%, RPC (RPC.L) +11%, LSL Property (LSL.L) +7%, Earthport (EPO.L) +2%, Asian Plantations (PALA.L) -1%, Endace (EDA.L) -10% and Faroe Petroleum (FPM.L) -11%.

See the following pages for its 13 tips for 2013.

Key stats
Market capitalisation	£107m
No. of shares out	47m
No. of shares floating	40m
No. of common shareholders	not stated
No. of employees	not stated
Trading volume (10 day avg.)	0m
Turnover	0m USD
Profit before tax	-7m USD
Earnings per share	-0.18 USD
Cashflow per share	-0.17 USD
Cash per share	0.38 USD

*Correct as at 8 Jan 2013

Asian Plantations

Panmure is sticking with the Singaporean operator of four palm oil plantations in Malaysia after a disappointing year for the shares in 2012.

Analysts Graham Jones and Damian McNeela expect ‘2013 to be a year of significant development’. With all four estates due to be fully planted by the end of this year and a further 7,000 hectare plantation planted in 2014, they say most of the ‘heavy lifting’ has been done. Palm oil is often the vegetable oil used in an array of supermarket goods.

Panmure thinks the company, which floated in 2009, could attract bidding interest from a Malyasian pension provider or one of its larger rivals. It has set a target price of 380p, compared to 234.5p today which values it at £109 million.

Key stats
Market capitalisation	£80m
No. of shares out	51m
No. of shares floating	30m
No. of common shareholders	not stated
No. of employees	3384
Trading volume (10 day avg.)	0m
Turnover	£114m
Profit before tax	£6m
Earnings per share	12.32p
Cashflow per share	27.01p
Cash per share	12.84p

*Correct as at 8 Jan 2013

Caretech

Caretech, the Kent-based support services provider for adults with learning difficulties, is Panmure’s top pick of the year.

Analysts Savvas Neophytou and Mike Allen say: ‘We believe that Caretech should be a core holding for investors looking to introduce healthcare or attractive special situation stocks into their portfolio. It provides good growth (7% adjusted EPS [earnings per share] CAGR [compound annual growth rate] for 2011A [announced] – 2015E [estimate]) and defensive characteristics with its main areas of operations being in the stable UK healthcare markets.’

The analysts have set a price target of 230p, compared to the current share price of 156p, which values the company at £80 million.

Caretech is also a top 10 holing in the Henderson UK & Irish Smaller Companies fund run by Robert Giles and Adam McConkey.

Key stats
Market capitalisation	£125m
No. of shares out	438m
No. of shares floating	194m
No. of common shareholders	not stated
No. of employees	413
Trading volume (10 day avg.)	0m
Turnover	27m EUR
Profit before tax	-131m EUR
Earnings per share	-0.21 EUR
Cashflow per share	-0.21 EUR
Cash per share	0.40 EUR

*Correct as at 8 Jan 2013

Dolphin Capital Investors

The AIM-listed developer of seaside resorts in emerging markets is a key smaller company pick for Panmure this year. Panmure also acts as corporate broker to the company, which is currently valued at £125 million on a share price of 28.5p.

Analysts Mark Hughes and Rachael Applegate say the firm is in a good position after raising €50 million from investors while making progress with its upmarket property portfolio in the Mediterranean and Caribbean.

With its shares trading at less than a third of net asset value of its investment portfolio, the Panmure analysts believe the shares can double over the next 12 months.

Dolphin Capital is a top 10 holding of both the Close Beacon Investment fund run by Deryck Noble-Nesbitt and the F&C UK Select investment trust managed by Phil Doel.

Key stats
Market capitalisation	£52m
No. of shares out	285m
No. of shares floating	231m
No. of common shareholders	not stated
No. of employees	76
Trading volume (10 day avg.)	1m
Turnover	£3m
Profit before tax	£-10m
Earnings per share	-3.87p
Cashflow per share	-3.80p
Cash per share	2.02p

*Correct as at 8 Jan 2013

Earthport

A pre-Christmas contract win with the Bank of America was a ‘major milestone’ for Earthport, the operator of low value cross-border payments systems, according to Panmure, its corporate broker.

Analysts Mike Allen and Paul Jones believe Earthport is well positioned to deliver significant growth. They reduced their target price from 28p to 24p to reflect the dilution of a share placing in November. ‘This would be a mere starting point if the company is able to execute across all of its longer-term opportunities,’ they say.

The shares currently trade at 18.4p.

Key stats
Market capitalisation	£291m
No. of shares out	212m
No. of shares floating	151m
No. of common shareholders	not stated
No. of employees	37
Trading volume (10 day avg.)	0m
Turnover	£80m
Profit before tax	£47m
Earnings per share	20.15p
Cashflow per share	25.49p
Cash per share	52.54p

*Correct as at 8 Jan 2013

Faroe Petroleum

Faroe Petroleum is another of Panmure’s corporate broking clients. But after an 11% fall in the share price last year left the oil exploration company trading at a discount of over 30% below net asset value, Panmure is convinced the shares are undervalued.

‘A robust drilling programme in 2013 with four wells scheduled for drilling in Norwegian waters could provide the catalyst for a rerating of the shares,’ says analyst Leila Reddy. A 78% tax rebate from the Norwegian government should reduce the cost of exploration, she adds.

Reddy has set a target price of 205p. The shares currently trade at 135p, valuing Faroe at £287 million.

Faroe Petroleum is a top 10 holding of the Schroder ISF Global Small Cap Energy fund.

Key stats
Market capitalisation	£53m
No. of shares out	113m
No. of shares floating	81m
No. of common shareholders	not stated
No. of employees	15
Trading volume (10 day avg.)	0m
Turnover	£27m
Profit before tax	£3m
Earnings per share	2.98p
Cashflow per share	3.05p
Cash per share	10.22p

*Correct as at 8 Jan 2013

Gable Holdings

The AIM-listed insurer specialising in the construction and commercial sectors was Panmure’s top pick in 2012. Despite its share price doubling last year, analyst Barrie Cornes believes there is more to go for in 2013.

Cornes says the recent decision of insurance broker Towergate to add Gable to its panel shows the seven-year-old company has established itself in the market.

He writes: ‘Gable has proved adept at exporting the success of a product line in one country into another. We anticipate that this strategy will continue further increasing gross written premium.’

With the shares trading at just eight times earnings, a big discount to the sector average, Cornes is tipping them to reach 63p. The current share price of 47p values Gable at £53 million.

Panmure is a corporate broker to Gable Holdings.

Key stats
Market capitalisation	£79m
No. of shares out	640m
No. of shares floating	340m
No. of common shareholders	not stated
No. of employees	5757
Trading volume (10 day avg.)	3m
Turnover	£374m
Profit before tax	£-89m
Earnings per share	-14.24p
Cashflow per share	-11.36p
Cash per share	2.10p

*Correct as at 8 Jan 2013

Johnston Press

Shares in Johnston Press, the publisher of the Scotsman, Yorkshire Post and a host of local papers, doubled last year as the company restructured and pushed on with the ‘digitisation’ of its business under new chief executive Ashley Highfield.

Panmure, which acts as corporate broker to Johnston, believes there is more to go for in 2013. Despite the advertising downturn, analyst Alex DeGroote says Johnston can still generate over £30 million in cash flow. As restructuring charges drop out this should feed through to the bottom line and help the group reduce its debts if it continues to keep a grip on costs.

Johnston Press faces competition from Local World, the new regionals consortium backed by hedge fund manager Crispin Odey that has combined the local paper businesses of both the Daily Mail and the Daily Mirror groups.

It is the biggest holding (9% at the end of October) of the Close Special Situations fund run by Deryck Noble-Nesbitt. It is the second biggest holding of the Henderson Fledgling investment trust.

The shares currently trade at 12.25p, valuing Johnston at £78 million. DeGroote has set a 18p price target.

Key stats
Market capitalisation	£61m
No. of shares out	43m
No. of shares floating	31m
No. of common shareholders	not stated
No. of employees	2401
Trading volume (10 day avg.)	0m
Turnover	£140m
Profit before tax	£1m
Earnings per share	3.31p
Cashflow per share	8.69p
Cash per share	6.39p

*Correct as at 8 Jan 2013

Regenersis

The operator of technical call centres for a range of consumer technology groups, Regenersis had a good year in 2012, reinstating the dividend and gaining its first contract in the US, with a major cable TV network.

Analysts Paul Jones and Mike Allen forecast profits of £8.7 million for the year to June 2013 rising to £10.6 million in 2014, with earnings per share of 15.9p rising to 19.1p. These estimates assume no contribution from the US, and so are highly conservative say the analysts.

They have raised their target price to 206p from 159p. The shares closed yesterday at 142p, valuing Regenersis at £61.5 million.

Panmure acts as corporate broker to Regenersis.

Key stats
Market capitalisation	£742m
No. of shares out	591m
No. of shares floating	547m
No. of common shareholders	not stated
No. of employees	11105
Trading volume (10 day avg.)	0m
Turnover	£2,808m
Profit before tax	£0m
Earnings per share	-0.05p
Cashflow per share	9.14p
Cash per share	21.48p

*Correct as at 8 Jan 2013

SIG

With a market value of £745 million, SIG is one of the biggest companies in Panmure’s tip list. The Sheffield-based provider of insulation and specialist building products is well positioned to benefit from the push to energy saving, even if construction is in the doldrums.

Analyst Andy Brown says: ‘The combination of volatile energy prices, carbon emissions targets and regulatory driven demand provides structural positives for SIG. European growth opportunities remain, while improved group volumes should encourage positive operational gearing.’

Key stats
Market capitalisation	£446m
No. of shares out	660m
No. of shares floating	656m
No. of common shareholders	not stated
No. of employees	17157
Trading volume (10 day avg.)	0m
Turnover	£760m
Profit before tax	£-563m
Earnings per share	-85.37p
Cashflow per share	-79.81p
Cash per share	14.76p

*Correct as at 8 Jan 2013

Spirit Pub Company

Freed by the 2011 demerger from Punch Taverns, the country's biggest pub chain, Spirit Pub Company had a good 2012, with its shares surging by 50%.

Nevertheless, analysts Lindsey Kerrigan and Simon French say the stock trades at an undeserved discount to peers like Marstons and Greene King. They say Spirit is not given the credit it deserves for a refurbishment programme and general tighter management control.

They have set a 75p target for the shares and predict that if the stock does not rerate it will fall to an industry bidder.

The shares closed at nearly 68p yesterday, valuing Spirit at £446 million.

The company is a top 10 holding in both the Aberforth UK Smaller Companies fund and the Aberforth Smaller Companies investment trust.

Key stats
Market capitalisation	£31m
No. of shares out	68m
No. of shares floating	52m
No. of common shareholders	not stated
No. of employees	3778
Trading volume (10 day avg.)	0m
Turnover	£217m
Profit before tax	£-1m
Earnings per share	-1.34p
Cashflow per share	13.62p
Cash per share	4.27p

*Correct as at 8 Jan 2013

Thorntons

The recovering chocolate shop group is another top 10 holding in the Henderson Fledgling investment trust, which often catches established companies when they fall on hard times and slip out of the main FTSE indices.

Thorntons has suffered from a decade of rising raw material costs and high rental costs on its stores. However, analysts Philip Dorgan and Jean Roche believe its three-pronged strategy of increasing online and supermarket sales, restoring profitability by better buying and improved manufacturing and reviving the brand will pay off. They recently slapped 'buy' on the stock with a 50p price target.

They say: 'Five years ago, Thorntons' share price was around 180p. At the time, it was making EBIT [earnings before interest and tax] of around £8.5 million and the valuation was 20x [earnings]. We think that Thorntons can get back to that level of EBIT in FY2015. We are not suggesting that the shares will multiply by six, but this is a highly financially geared situation and the upside should therefore be considerable.'

Key stats
Market capitalisation	£100m
No. of shares out	21m
No. of shares floating	10m
No. of common shareholders	not stated
No. of employees	40
Trading volume (10 day avg.)	0m
Turnover	2m USD
Profit before tax	-1m USD
Earnings per share	-0.04 USD
Cashflow per share	-0.01 USD
Cash per share	0.00 USD

*Correct as at 8 Jan 2013

WanDisco

The development tool software company was a hot tech stock of 2012 as investors lapped up the shares at its flotation in June. Analyst George O'Connor reckons 2013 is the year WanDisco 'migrates from newbie to superbee' as it becomes 'a platform company with a unique patent approved data replication technology' serving a number of popular applications.

'For investors this means WanDisco has a scalable, leverageable operating model with products at varying stages of the product life cycle, maturing at different rates - ensuring that growth rates (69% latest reported) are kept punchy,' says O'Connor.

He has a price target of 537p on the shares which closed at 481.5p yesterday, valuing the company at £99 million.

Key stats
Market capitalisation	na
No. of shares out	na
No. of shares floating	na
No. of common shareholders	na
No. of employees	na
Trading volume (10 day avg.)	na
Turnover	na
Profit before tax	na
Earnings per share	na
Cashflow per share	na
Cash per share	na

*Correct as at 8 Jan 2013

Zambeef

Zambia's largest beef producer is also a food conglomerate involved in the production of procession, distribution of beef, chickens, eggs, milk and dairy products. The company, which is listed in Lusaka and London, benefits from Zambia's buoyant economy with the IMF forecasting GDP growth to rise from 6.5% to 8.2% this year.

Zambeef reported a 93% leap in adjusted pre-tax profits to US$13.5 million in 2012. Analysts Damian McNeela and Graham Jones forecast profits to jump a further 40% to US$19 million this year. With the shares trading at 8.6 times forecast earnings they have set a 53p price target. The shares closed yesterday at 42p, valuing Zambeef at £87 million.