Newspaper article The Journal (Newcastle, England)

Share Watch

Newspaper article The Journal (Newcastle, England)

Share Watch

Article excerpt

Fki: We upgrade FKI to an Outperform rating following a reassuring trading update and its growing attraction as a late-cycle play in the sector, notably through the Logistex and Energy Technology divisions.

In view of the late-cycle characteristics of FKI, we believe that it now deserves a premium to the market. Applying a 15pc premium to the European Mid-Cap Engineering sector P/E 2005e, we set the fair value at 145p (PE 12.5x FY06). Indeed, the key factor is the apparent turnaround in the key division, Logistex, which appears to be happening with new orders coming in for the first time in three years. We think that this is the beginning of an uptrend, which should lead to improved margins for the group as a whole.

Northern Rock: Northern Rock's (NRK) Q3 trading update resulted in the management confirming that the cyclical funding pressures were abating, although this issue will still prove a drag on margins for the rest of 2004. On the demand side, despite industry forecasts of up to a 20pc year-on-year decline in mortgage activity, NRK indicated that its pipeline of agreed business was 24pc higher on this basis.

These factors are an early signal that NRK can deliver superior growth in a slowing environment. At 9.1x 2005E earnings and with earnings growth forecast to be at the top end of its peer group, we find it somewhat surprising that investors still value NRK at a discount to the sector.

We estimate a fair value of 800p based on an undemanding 9.8x 2005E earnings forecast. This forms the basis of our Outperform recommendation.

Vodafone: Vodafone's (VOD) recent investor day and development of its operational structure have renewed our preference for this stock within the UK sector.

The group continues to highlight its strong fundamentals and superior growth prospects with its decision to diversify away from the UK market and pursue a global 3G strategy. Its strong free cash flow (FCF) generation will be boosted further by the intention to accrue pounds 2. …

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