Stocks to watch in September

JD Wetherspoon

JD Wetherspoon shares plummeted from 600p to 200p in the great bear market of 2008/9 and directors suspended the dividend for one year as a precaution.

But the 700-strong pubs chain never lost its capacity to make decent profits throughout the recession. The pre-tax figures recovered from a low of £45 million in 2009 to £61 million in 2011. For the year just ended the returns are expected to come in at £67 million.

This unspectacular performance has been enough to give the shares a solid performance. The latest trading statement in early July from chief executive John Hutson suggests this will continue in the current year. The company's trade has received a welcome fillip from the Euro 2012 football championship and the Diamond Jubilee. Analysts feel any form of growth in the current gloomy retail climate is quite an achievement.

The government's search for extra revenues from higher VAT, excise duties and carbon taxes will force founder Tim Martin to slow the rate of expansion of his pubs chain this year. Last year he opened 40 new outlets. This year it may only be 20 to 30. The shares now sell on a forward earnings multiple of 11 and a yield of 3.15.

Dechra Pharmaceuticals

Dechra Pharmaceuticals, for a long time a favourite of this column, continues to grow impressively through the ups and downs of the economic cycle.

Profits for the year to June are expected to leap from £18 million to £32.5 million as the benefits of expanding its high-margin veterinary drugs activity continue to show through. A chirpy update at the beginning of July from chief executive Ian Page indicated strong revenue growth particularly in the US division.

Looking ahead to the current year brokers are already confident of another impressive rise in profits to £43 million implying the shares sell on less than 12 times earnings. An attractive rating for a genuine growth business.


Housebuilder Redrow should be back paying dividends this year for the first time since 2008. After three years heavily in the red, the group got firmly back into profits in 2011, and for the year to June 2012 the pre-tax returns should be £10 million higher at £35.3 million.

Hopes are high among the analysts that progress can continue in the current year with profits expected to be £50 million. But that is still a long way from the boom days of 2007 when profits hit £121 million and the company was at least twice the size it is today. In those days the shares were trading over the 500p mark. In the bear market they sank to 100p. Now at 120p they still struggle to find investor support.

Pan African Resources

Pan African Resources is that rarity among AIM-listed mining companies in being both profitable and paying dividends. Profits for the year just ended are slated to top the £50 million mark (£26.4 million last year) reflecting continued expansion of its gold and platinum mines in South Africa and its Manica Gold project in Mozambique.

It is now in the process of further major expansion in gold production through the acquisition from Harmony Gold of the Evander mine in South Africa, which will have the effect of doubling Pan African's production to around 200,000 ounces a year.

This game-changing deal emphasises Pan African shares as a pure play on the gold price. Many believe the yellow metal price may soon run out of steam after its exceptional 'bull run' over the past few years. Analysts' forecasts of profits for the current year of £70 million may prove a major undershoot if gold does hold at anywhere near present levels. The forward earnings multiple of 4.9 and the projected yield of 4.5% look attractive.

This article was written for our sister publication Money Observer.