In this article published in The IRS Report in June 2010, John Snowden discusses the positive ratings on his selections...

More positive ratings on my previous selections

The General Election was a real cliffhanger but the resulting coalition could prove a godsend, as the Conservatives and Liberals seem to have agreed on a sensible, albeit limited, programme to concentrate on reducing our vast debt mountain. The currency markets seem to be turning to a more positive view of sterling. Sterling has improved against some of the minor currencies such as the Norwegian krone which was 8.1 NOK to the pound a month ago but has improved to 9.5 NOK.

Perhaps we will soon have a sterling improvement against the US$. As for the euro, the world has the jitters over the problem of having many countries with differing problems under one currency umbrella.

It is vitally important for Britain to keep interest rates low if we are to expand the economy. Inflation continues its upward drift under the benign watch of Bank of England Governor Mervyn King, who has had to write yet another letter to explain that the rise has been caused by sterling's depreciation, and high oil prices coupled with general higher energy and food prices. The RPI (retail price inflation) at 5.3% is at its highest level since the Lawson era.

Rising inflation could lead to a wage spiral this autumn – BT workers could be the first in taking action – which could mean an interest rate rise comes some six months too early. Perhaps inflation could become a method to inflate our debt away. Gold and gold shares such as Centamin Egypt should certainly be retained if this were to happen, although the gold price is likely to go through an uncertain period in the short term. Come the Autumn we could start the next leg of a major rise. The latest quarterly report from Centamin has been reported on the website.

There is also comment on Begbies Traynor on the website. The share price, despite a director buying, hit the stop price at 77p as we went to press for the last issue to book in a 21% loss against the reported price of 97p.

Vodafone reported preliminary figures for the year to 31st March in mid-May as net profit more than doubled to £8.65bn from £3.08bn. India remains the big millstone as the company booked a £2.3bn impairment charge due to fierce competition. Otherwise the revenue trend continues to improve and the cost cutting programme is ahead of schedule. The final dividend of 5.65p rises from 5.20p last year making an annual total of 8.31p versus 7.77p last year.

Broker comment remains mixed with seven buys, two weak buys, one weak sell and four sells, but we remain neutral due to the currency protection of this multinational operation. A fall to around 120p would turn our neutral rating to positive again.

The share price of Cape has fallen quite sharply since the last issue but the May statement remains positive for the year and there is an element of currency protection. Our neutral stance could turn positive if the shares dip below 190p. In the meantime, the six institutions that follow the company maintain their buy ratings with not a hold or sell in sight. Looking back at the two companies featured last issue, Digital Barriers remains in the same price range as last month while Enquest has drifted back only to attract investment buying between 85p and 90p. Since the latter was featured, broker Cazenove has come onto the scene, saying the shares are fair value up to 120p. We remain positive on both these situations.

Independent Media is becoming the star of the portfolio. The recent AGM statement shows that four months into the current year total revenue is 30% ahead with international revenue up over 100%. Normalised pretax profit is over 50% up on last year with the company remaining debt-free with over £1m cash in the bank. We must remain positive on this one.

IMI has been a heavy faller and a big riser during the last month. The company is due to report interims on 26th August which should be in line or even better than expectations. I believe the reason for the current weakness is a large institutional seller which has been reducing a double digit percentage stake in the company. The fall below 590p offers a good opportunity to slowly accumulate a holding. As for broker sentiment – eight out of nine say buy, one hold.

A similar pattern emerged about six weeks ago in the period before and after results from H&T Group, where the figures were excellent but the shares fell from just under 300p to 240p. While I maintain a neutral rating, it is interesting to note that all the seven brokers who follow the company have kept their buy ratings.

The recently reported results from Greggs exceeded some broker expectations and the share price surged through 500p. I remain cautious as the company is continuing its unit opening programme but competition must be fierce. I remain weak neutral as of the seven following brokers, ranks have broken with three buys, one weak buy, two holds and one sell.

Faroe Petroleum is subdued due to the rights issue. I hope the share price will remain above 100p and will improve once the busy exploration programme reports further results. Fidessa has always been a volatile situation with the shares moving sharply either way. Until recently, the upward trend has remained intact. Growth will continue this year but the pace will be slower than 2009. On the plus side, the company has no debt and is a strong cash generator. The balance sheet is strong and the company has ample cash reserves. Of nine brokers, five remain buyers, one is a weak buy and three are hold.

Continued at www.TheIRSReport.com

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