| Buy GKN at 220.6p Says Robert Sutherland-Smith of UK350.com Making the most of his extensive knowledge and long City experience, Robert Sutherland-Smith takes a sensible long-term approach to investing, identifying the stocks with the greatest potential from the FTSE 350. To get a fortnightly newsletter from Robert, featuring his analysis of the market outlook, a new recommendation and updates on previously tipped stocks, join UK350.com now. Buy GKN (GKN) at 220.6p I have been keen on GKN for some time, having tipped it originally in August 2009 when it seemed underpriced against its fundamental attractions. Those attractions have recently increased; first with the announcement to acquire the Volvo aerospace business and second with an assessment of the latest six months results to 30th June 2012. The acquisition of the Volvo business should transform GKN. The company’s existing aerospace division accounts for just over a fifth of group sales and profits. It is the activity with highest trading margin at 11.2%; the average trading margin is 8.5% and the trading margin on the driveline business (nearly half of group sales) is merely 7.1%. So, one may see that an aerospace acquisition would on the face of it, increase average trading margins significantly. We are told that such an acquisition would mean the enlarged aero space contributing 40% of earnings. Results for the six months to June were also very encouraging. Sales revenue increased by 16%. Reported statutory operating profit increased by 43% (31% underlying) earnings by 38% (32% underlying) and the dividend payout was increased 20%, reflecting both performance and confidence. Despite headwinds from Europe, management had unchanged expectations for the year as a whole and expected another ‘good year’. At a share price of 220.6p (last seen) the company has cash valued at 6p per share; total assets under management worth 320p per share; balance sheet attributable assets valued at nearly 75p a share; net tangible assets worth nearly 18p a share; annual operating cash of £454 million (covering the annual dividend cost of £85 million more than five times. Most strikingly, comparable interim operating margins rose from 7.5% to 9.2% and net margins from 5.75%. Trading showed North American car production up by more than a fifth, with up-market vehicles in demand. GKN Driveline sales rose by 9% to £1.66 billion. The group’s powder metallurgy business rose a quarter to £47 million. It is to be understood that GKN equity is geared by 65% of debt. We are told that when the takeover of the Volvo business is finally done it will pause from further acquisitions in order to enhance earnings and pay down debt. GKN (GKN) was tipped here twenty four months ago at 96p. Last seen, the shares at 220.6p (having peaked at 237p in February) have seen a capital gain of 130% plus paid out dividends. With the above considerations and on estimated earnings of 25p for this year and 28p next year, the shares are on prospective price to earnings ratios of 8.6 and 7.5 and forecast dividend yields of 3.3% and 3.8%. They look underpriced for a company with an increasing aero business. A Buy.
To get Robert Sutherland-Smith's fortnightly newsletter with a new recommendation like this, plus updates on previous tips and analysis of the market, click here |
If you do not wish to receive such emails please use the following link to unsubscribe.
UK-Analyst.com is owned by t1ps.com Ltd which is authorised and regulated by the Financial Services Authority
The hot share tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the share tips contained here should seek independent advice from a Financial Services Authority authorised Stockbroker or Financial Adviser. So, while we would not wish to reduce our liability under the FSA regulatory regime, we cannot otherwise be held liable if individuals suffer losses through following share tips contained on this site or emailed out as free share tips. The value of investments can go down as well as up. The past is not necessarily a guide to future performance. Investing in shares can lose you part or all of your capital although the potential returns are theoretically unlimited. The difference between the buy share price and the sell share price for smaller company shares (penny shares) can be significant. Profits from dealing in shares may be liable to tax - the level of tax and bases of relief from tax are subject to change. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Financial spread betting is a high risk investment, losses from which are potentially unlimited. Some of the shares recommended on this site will be smaller company shares. By their nature such investments can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares (or 'small caps'/'penny shares'). UK-Analyst.com defines a smaller company share as any stock traded on AIM or PLUS or which has a market capitalisation of less than GBP300 million.
No comments:
Post a Comment