The sharp sell-off at the end of February was a timely reminder that risk is alive and well. Markets have had a strong run and a healthy correction was needed at some stage. But the triggers appear to have been overseas – a sharp fall in the Chinese market, the weak US subprime lending market, and a reversal of the yen carry trade; the fundamentals of the UK economy remain fairly robust. Business investment is growing at a healthy pace, retail sales and manufacturing are surprisingly strong, and the housing market continues to hold up well. Inflation and high levels of personal indebtedness are blots on this rosy landscape, but it doesn’t look as though the economy is heading south just yet. Valuations are still not particularly cheap and it takes a bit of digging to uncover good value, but here are four stocks to consider:
Finsbury Foods (FIF) is a premium cake and speciality bread business that has carved itself a niche in the innovative branded arena, supplying supermarkets with own-label products. The firm is showing good organic growth, supported by strong cash generation and an attractive valuation. It recently raised funds for the acquisition of Lightbody, a Scottish bakery, which brings increased capacity, a small presence in France, and valuable licence agreements with both Thorntons and Disney.
Inspired Gaming (INGG) is a cash-generative growth story. The firm supplies and operates gaming machines to pubs, betting shops and other areas of the leisure market. Its growth comes from the roll-out of server-based gaming machines, whereby one machine can run several games downloaded from a central server. This is improving margins, visibility and reinforcing barriers to entry. Server-based gaming is nothing new – Inspired Gaming has been rolling it out for a few years now – but it shows the way the industry is going, and Inspired Gaming is the UK’s market leader by some margin. The smoking ban is one uncertainty on the horizon, but the pressure on struggling bingo operators to update their machines, as well as the latest round of proposed Gaming Act deregulation from September this year, should prove beneficial.
Styles & Wood (STY) made a successful debut on the main market near the end of 2006. It offers property outsourcing services – such as store fit-outs, refurbishments, and extensions – to premier UK retailers, including banks. The firm is well run, cash-generative and strongly positioned in a fragmented market. The main driver is changes in its customer base. Business with Marks & Spencer significantly increased in the retailer’s darkest hour in 2003, when management looked to reinvigorate stores to turn the business round. It is worth noting that John Lewis, also a customer of Styles & Wood, recently announced an aggressive expansion strategy.
Finally, Metnor (MTG) is a little-known, family-run construction, contracting and property development company, which, despite its strong run, is still good value. Its fabricated timber-frame construction technique, which is more energy efficient and cuts down on construction time, is becoming increasingly popular. In property development, Metnor focuses on niche areas, such as care homes, doctors’ surgeries and student accommodation. The business model has proved to be successful in the likes of Kier and Rok Properties, and is resulting in good earnings momentum – this company should soon hit investors’ radars.
The stocks Marina Bond likes
12mth high 12mth low Now
Finsbury Foods 111.5p 62p 98.5p
Inspired Gaming 282p 173p 279p
Styles & Wood 237p 168p 216p
Metnor 427.5p 223.5p 416p