Stocks to watch in March

Published by Jim Levi on 22 February 2011.
Last updated on 23 February 2011

Stocks and shares sheet


Manufacturing is back in fashion in the stockmarket, having undergone a dramatic re-rating in the past couple of years.

Shares in GKN, one of the UK's leading engineering companies, were trading as low as 36p in 2009. But along came the global recovery and the shares are now at 222.2p. A £423 million rights issue triggered the comeback. Across the broad spectrum of its interests – in vehicle components, aerospace and industrial equipment – the group returned to profit.

GKN will be among a clutch of engineers whose results in March will show how well UK manufacturing recovered during 2010. But will the revival now fizzle out?

GKN's profits for 2010 are expected to come in at £330.5 million – the company has already reported profits of £263 million for the first nine months. The group made heavy losses in the previous two years.

GKN's management is making encouraging noises about 2011, and one analyst believes GKN could raise its earnings per share from 15p to 25p, implying a forward price/earnings multiple of only 8.9 which makes our analysts bullish on the shares.


IMI is another global engineering group that ended 2010 on a high. It joined the exclusive group of FTSE 100 companies after its shares rose nearly fourfold in two years.

IMI incorporates leading global niché businesses in the fields of valves, fluid controls, climate controls and drinks equipment.

The company's track record through the recession shows how efficient and resilient it has become. Profits, earnings and dividends have risen steadily in each of the past five years.

Profits for 2010 are forecast to surge spectacularly, from £186 million to £291 million. Earnings per share are expected to jump from just under 50p to 63.5p. Analysts are hoping for earnings as high as 78p a share in the current year, reducing the forward price/earnings ratio to 12.3.


Melrose is not yet in the FTSE 100, but it may not be long before it joins the elite.

The engineering conglomerate, created by former Lord Hanson acolyte Chris Miller, shrewdly acquired the much bigger FKI engineering group in July 2008 in a classic reverse takeover deal worth nearly £500 million. Miller and chief executive David Roper have done a hugely impressive turnaround job on FKI, and the results already coming through look quite spectacular.

In 2009, profits jumped from £23.5 million to £82 million, while earnings per share increased from 4.1p to 11p. For 2010, the market expects profits of £167 million and earnings per share of 24.3p. Even more growth is in prospect in 2011 if analysts' forecasts of £200 million in profits and earnings per share of 28p come to fruition.

The shares were as low as 58p two years ago as the recession bit deeply. However, they now change hands at 311p, where they sell on a prospective 11 times earnings per share. That is still a very modest rating for such a cracking growth story.


Global recruitment consultancy Michael Page International felt the full force of the recession in 2009. Its profits sank from £140 million to £21 million.

Chief executive Steve Ingham took a scalpel to company costs. He reduced staff levels by 28% and cut the number of offices worldwide from 163 to 136.

This speeded the recovery, which began in the final months of 2009. The year 2010 was a pumper year - even banks began recruiting again. Profits are expected to be £73.6 million for the year just ended.

This year looks likely to be another year of good growth, despite shrinkage in public sector payrolls in some of Michael Page's major markets. The group has lately beefed up it exposure in Latin America and Asia Pacific.

Profits look like being back up at around £140 million this year if the analyst' consensus is correct. The shares were 600p back at their 2007 peak and then plunged to below 200p in May 2009.

The shares now trade at 555p where the forward price/earnings multiple is a reasonable 26.6. Despite improved prospects, the analysts' rating is only neutral.



In march last year, we described First Quantum Minerals as a 'mining giant in the making'. We felt that the shares, at 3,683p, were 'god long-term value'. Since then, buoyed by strong copper and gold prices, they have almost doubled to 6,900p.

The stockmarket seems unfazed by the group's copper mining problems in the Democratic Republic of Congo, where a shutdown has cost the group an estimated $244 million in the third quarter.

Vancouver-based First Quantum operates mineral ventures in Africa, Finland and Australia. Copper production alone is forecast to rise from 373,000 tonnes in 2009 to 740,000 tonnes by 2015. Profits have been hit by the COngo dispute, but the market is already looking for recovery this year, comforted by an expected big hike in the dividend.


We highlighted Cineworld shares last March, commenting on the attractions of the safe 6.4% yield at the then price of 156p. The share has risen to 217p and the yield remains an attractive 4.85%.

The company owns a network of 77 cinemas with 790 screens. It has made impressive profits progress in recent years. Upcoming profits are expected to be a record £35 million (£30.8 million last time), despite a tough year for advertising revenues.

In a January trading update, chief executive Steve Wiener revealed solid revenue growth for 2010 and particularly strong performance by Cineworld's screen advertising arm. Expect further steady, if unspectacular, progress for its shares.

Earnings per share are expected to rise from 14.96p to 17.42p for 2010. A price of 20p has been pencilled in by the analysts for the current year. That brings the earnings multiple down to 10.85.


Motor dealers had a torrid time in the recession, forcing the government to step in with its scrappage scheme. However, Lookers is now firmly on the recovery road. Its network of 120 franchises is expected to generate almost £2 billion of revenue in 2011.

The company started paying dividends again last August, when the half-year bulletin showed profits surging from £8.6 million to £21.4 million. Full figures for 2010 should hit £32.74 million, while broker Execution Noble expects profits of £37.7 million for the current year.

At 62p, the shares are on a forward price/earnings multiple of 9.7. A forecast dividend of 2.2p a share by one broker implies a yield of 3.5%.


Psion was an early pioneer of handheld computers. Despite stiff competition from giants Nokia, Apple, Sony and Samsung, the company is still around. Indeed, it continues to carve a niche for itself in rugged handheld computers for workers in factories and warehouses, and on building sites.

After running into the red in 2008 and 2009, Psion restructured and returned to profit in 2010. Results are expected to show a positive pre-tax figure of £5.7 million, against a loss of nearly £3 million last time.

New products, such as the EP10 launched in December, are expected to spearhead expansion. Profits this year could reach £12 million, and one broker forecasts that earnings per share will reach as high as 7.8p. At a price of 95p, shares would be selling on a reasonable 12.2 times earnings.


A tiddler to watch. That, perhaps, is the best description for Ideal Shopping Direct, the only quoted television shopping company and smaller rival to QVC.

ISD has a market value of only £68 million, yet it is expected to have earned profits of £5.8 million in 2010 - more than five times profits earned in 2009.

One broker expects another 50% surge in earnings in the current year. At 198p, the shares would be on a forward earnings multiple of 11.


Shareholders in exotic property group Raven Russia have had an exciting rider in the last couple of years. The shares rose during the period from 11p to 62p on the back of rising values for its portfolio of warehouses around Moscow and St Petersburg.

The company has moved from AIM to a full main market listing. Its half-year results encouraged buyers by reporting rises in rental income, a recovery in valuations and a boost to the dividend.

Net operating income is projected to reach $123 million (£79 million) when the properties are fully let.

This article was taken from the March 2011 edition of Money Observer