Long-suffering Old Mutual may have reached nadir

THE INVESTMENT COLUMN

Our view: Sell

Share price: 96.4p (-1.9p)

The last few months have not been terribly good for the Anglo- South African insurer and asset manager Old Mutual. The firm has suffered in the global financial slowdown and the stock has been in freefall, losing nearly half its value in the last year.

Yesterday's profits warning hardly helped. The group says its US asset management and life businesses are performing well and making progress despite the tricky markets. Progress, however, can be defined in many ways, especially after the company said that first- half US profits will be just 75 per cent of last year's $195m.

The hope for Old Mutual is that yesterday's statement will act as a nadir and that the only way is up from here. The company is geographically diversified, and has 55 per cent to 60 per cent of earnings coming from South Africa, which has a booming commodity- driven economy. On the flipside, the chief executive, Jim Sutcliffe, says that UK investors see South African exposure as a risk, but that this is as a result of ignorance rather than anything more fundamental.

If it has got all the bad news out of the way, Old Mutual could well be an intriguing investment opportunity for buyers. Despite yesterday's profits warning the stock was down just 1.9 per cent on the day, indicating that the market thinks that the poor numbers were expected and already factored in. The shares are cheap compared with the rest of the market, with analysts at Barclays Wealth Research remaining neutral, pointing out that "net client cash flows continue to be positive".

Mr Sutcliffe concedes that the group's share price is inextricably linked to the performance of the wider market, and that things will be "rough" in the next six months. Given that, it would be imprudent to recommend anything other than a sell. However, it is almost certainly true that the stock, barring any unwelcome surprises, is close to reaching its floor, and any market recovery could lead to a bounce for investors. Sell.

Atkins (WS)

Our view: Hold

Share price: 1061p (-17p)

Robert MacLeod, group finance director, says that it is not for Atkins to say it is a defensive stock. Fine. So here it is: Atkins is a defensive stock.

The engineering consultancy and outsourcing group announced its full-year numbers yesterday, showing an impressive 31 per cent climb in pre-tax profits. Mr MacLeod reckons the key challenge for the company over the next few months is not market related, but rather it is recruiting and retaining key staff and management.

The group depends on the Government for 70 per cent of its contracts in the UK, where it does 80 per cent of its business, and is therefore the type of stock that risk-averse investors are looking for. For those wanting somewhere to park their cash and wait for the worst of the credit crunch to pass, Atkins is your share.

However, all investors know that even in the worst of global financial trouble, there are shares that will shoot out the lights. That cannot be said of Atkins. The company is sound, and investors will not lose out by backing it, but the shares are already fully valued.

Indeed, despite the impressive numbers yesterday, the stock actually fell by 1.6 per cent on the day, suggesting that those thinking there was potential for growth moved in some time ago. Investec says that "the stock trades at a premium to its smaller peers, on our forecasts, but we believe that this is justified. We maintain our 'hold' recommendation and 1050p a share price earnings based target price."

Those at Numis disagree, saying that the stock will reach 1207p, based on 16 times estimated December 2008 earnings, but that does appear to be a leap too far.

There is no doubt that Atkins is a very good company, but investors looking for gains should go for something a little more spicy. Hold.

Red24

Our view: Hold

Share price: 3.5p(unchanged)

This is not one for the fainthearted. Red24, a personal and corporate security advice firm, has never posted a profit, but has made grandiose statements in the past about the strength of the group, most often to no avail.

The executive chairman, Simon Richards, concedes that at times in the past the company has said that is has costs under control, only to post numbers showing the opposite a few months later. In retrospect, Mr Richards admits that some past pronouncements have been "foolish".

The group announced another full-year loss yesterday, saying that if it had not been for head office cost, the company would have been profitable. Mr Richards says that investors can expect positive numbers by this time next year, and very positive indications by the time of the interims in November. He reckons that a price earnings ratio of 10 times, double its present level, is not an unreasonable expectation. It would be tempting fate to say the group is worth backing now, but the company is limping towards profitability, and there are signs that it is emerging as a serious investment option. Hold.

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