With two out of three of my previous tips proving disappointing (so far, at least), this was not my most brilliant moment. Equal amounts invested in all three in January would be down by 1.5% overall. But what should you do with them now?
Corac (CRA): tipped at 37p
I said in January that good news ought to spur this engineering technology group’s shares higher, and that most investors might take profits when they did, driving the shares down again. But having hit 54p after good results in September, further good news has sent them to a five-year high of 57p. I believe the shares could now top 100p before the year is out. The September interims saw a 45% rise in revenue and a move closer to trials in 2008 of Corac’s key ‘downhole’ compressor – designed to significantly improve the amount of gas recovered from gas wells – in a real gas field. Since then, its partners, Conoco Phillips, Eni, and Repsol, have witnessed and commented favourably on further progress in the partial trials necessary before these key field trials can start.
While still loss-making, about two year’s cash remains on Corac’s balance sheet, and with revenue expanding, the prospect is that the cash may last the company longer than was expected before any new fund-raising. Gartmore has recently added to its 11.4% stake.
Recommendation: keep BUYING at 56.5p
Ashley House (ASH): tipped at 207p
In January Ashley House was still on the PLUS junior stockmarket and ‘stapled’ to sister company AH Medical Properties (AHMP). If you had bought then at 207p, you’d now have a share in Ashley House (now 147p on Aim) and one in AH Medical Properties (31.5p on PLUS). The combined price went to 234p after the mid-January split, but both have drifted since. AH Medical Properties has been dragged down by property aversion while Ashley House has succumbed to profit-taking.
But Ashley House’s results for 2006/7 in June were encouraging, with pre-tax profit up 75%, net assets per share doubling, and balance sheet net cash representing 10% of the market cap. Then in October the group reported an £82m order book – equal to 3.2 times last year’s turnover – and said it should meet City forecasts of at least a further 25% rise in profits this year, putting the shares on a less than 12 times p/e ratio and only 2.2 times net assets. Next year should be even better due to a tie-up announced last December, with the largest operator in health-related PPI projects, Babcock & Brown Group, which is feeding much of the design work on its projects to Ashley House.
Ashley House’s market is the health infrastructure needed to fulfill the NHS’s stated plans and to upgrade GP’s surgeries. Unless Chancellor Alistair Darling has to cut government spending very sharply indeed, this is about the most rock-solid market imaginable. Now looks a good time to buy some more. The same goes for AH Medical Properties.
Recommendation: BUY ASH at 147p, and AHMP at 31.5p
Photo-Me (PHTM): tipped at 89p
Photo-Me is the joker in the pack. Everything seems to conspire to block shareholders’ access to the cash that its 31,000 photobooths produce. In the past this has been spent on upgrading technology, and to build up minilab manufacture – where Photo-Me has steadily seen off all rivals but Fuji. With capital spending set to fall, the plan was to sell off or restructure its photobooths and/or return the cash to shareholders.But the timing hasn’t been right. High street photoprinters have been slow to switch to the digital minilabs, and the dollar fall has cut into profit margins. Worse still, buyers have dried up following the credit crunch. Yet the group has an expected ‘break-up’ value of well above 100p, which has got to come ‘out’ at some stage, surely. The recent AGM reported that photobooths had picked up again after a slow spring, and a second-stage order from the USA’s biggest pharmacy chain for minilabs is reassuring. The AGM also authorised the share buy-back programme, which should put a floor under the shares for those willing to risk that major shareholders will find some way to realise value. But with no end in sight to the liquidity crunch, who can say when this will be?
Recommendation: high-risk BUY at 52p
John Cornford is a City analyst