Conglomerates are harder to value and this is certainly the case with Smiths Group, the engineering outfit. While management continues to be convinced of the benefits of operating in different markets, investors have a hard time recognizing that the company's value is greater than the sum of its parts. Hence, there may be a valuation gap, as yesterday's bumper return of cash of 118m pounds - or 30p per share - shows. The company's recent performance has been solid, with cash-flow in the year just completed improving to 237m pounds from 217m pounds. Investors have been rewarded for their patience and there could be more to come. Shares are currently trading at 15.3 times 2013 earnings but only 13.9 times what appear to be reasonable analyst forecasts for 2014.
Smiths is not without its problems. There are hefty pension liabilities that have been flattered by the soaring stock market; the net deficit was down to £254m, from £620m a year earlier. And asbestos claims in the US rumble on. But, crucially, these are expected, stable and manageable, for now. Overall, that makes the shares
interesting, given a forecast dividend yield of 3.1%, and the possibility of an acquisition-led re-rating, or another return of cash if nothing happens. The Daily Telegraph's Questor likes being paid if nothing happens, buy.
Redrow, the FTSE 250-listed housebuilder, has returned to the dividend trail alongside a set of results that beat market expectations yesterday. With revenue and profits both rising strongly and a bulging order book underpinning current trading, the shares should carry on rising. There are also encouraging signs on the balance sheet. Redrow activity is picking up sharply; houses under construction, or work in progress, increased 44% to £246m, and the stock of show homes increased by £5.6m to £27.4m.
Earnings per share [EPS] increased 45% to 15.7p, from 10.8p, in the year just completed. Consensus estimates think it will hit 19.2p in 2014, which doesn't look over-ambitious. That makes the shares, trading on 12.3 times 2014 forecasts, look interesting - especially when you add in the dividend. At the moment it is not much more than a token, but the consensus is it is likely to double every year for the next two years to 4p in 2015. Both the earnings and dividend targets could turn out to be conservative; buy, says Questor.
Faroe Petroleum's drilling campaign in the Norwegian North Sea has got under way with the first of six proposed exploration wells there. "As I wrote last month, the company has not had the best of luck in its exploration programme in recent months, but some analysts have hopes of a better news flow this autumn. The shares have come on by 12% since I suggested they were a decent speculative punt, but could go farther," explains The Times's Tempus.
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