Uk Stock Writeups

Reed Elsevier is the world's leading scientific publisher and is a major player in legal, accountancy and risk management publications and software. The company is a beneficiary of weak sterling and the expected stabilisation of the dollar against the euro. Only a small portion of revenues are dependent on the economic cycle, investment in on-line publications and materials is reducing costs and locking in clients for the long term. In addition, the recent acquisition of Choice-Point in the US (which offers a position in claims management software for the insurance sector), while bringing a number of cost synergies, is not in yet in the price.

Sedol	Type	Price	Date
B2B0DG9	Buy	£ 5.602	19/09/2008

Renold is a UK engineering company which has a global leadership position in the manufacture of conveyor chains, gears and coupling products. In its core chains market, it is number one in Europe, number 3 in the US and number 2 globally. After over-stretching itself at the top of the previous cycle and then having to contend with record steel prices in the last few years, the company is now beginning to bear the fruits of its recent financial and operational restructuring. However, we believe there is considerable upside remaining, as the negative impact of steel prices should ease (and probably reverse), plus the company's new management team has begun shifting its production base into the low-paid emerging economies of Poland, Malaysia and China. The new management team will present its profit and cash enhancement plan in early 2007 and a return to the dividend list will accompany its March 2007 results. We expect the new plan to offer the prospect of 8-10% OP margins (from 4.4% in y/e March 2006). The stock is cheap even if only modest profit expansion ensues.

Sedol	Type	Price	Date
0732507	Buy	£ 1.197	02/01/2007
0732507	Buy	£ 1.138	29/12/2006
0732507	Buy	£ 1.12	28/12/2006
0732507	Buy	£ 1.20	19/12/2006
0732507	Buy	£ 1.20	13/12/2006
0732507	Buy	£ 1.20	12/12/2006
0732507	Buy	£ 1.193	11/12/2006
0732507	Buy	£ 1.20	08/12/2006
0732507	Buy	£ 1.14	07/12/2006
0732507	Buy	£ 1.05	04/12/2006
0732507	Buy	£ 1.02	30/11/2006

Rentokil was sold because of concerns both over management and the deteriorating outlook for its UK parcels business, which reduced the fair value of the stock.

Rentokil was purchased as we now believe we are close to the trough in the company's profits and cash flows, as it restructures and revitalises itself. The CEO has been in place 18 months, during which time he has divested non-core and sub-scale businesses and re-invested strongly in the "priority" businesses of rat-catching, textile and washroom services and electronic security. This heavy investment phase is nearing its conclusion and should enable the company to begin to regain its momentum in these businesses and grow profits again after several years of decline. The company has strong positions in defensive markets and maintains a healthy dividend, currently yielding over 4.5%. Having re-focused on strengthened "priority" businesses, we see free cash flow growth and a 20% total return.

Sedol	Type	Price	Date
B082RF1	Sell	£ 0.82	29/02/2008
B082RF1	Buy	£ 1.487	08/11/2006
B082RF1	Buy	£ 1.545	25/10/2006
B082RF1	Buy	£ 1.483	18/05/2006
B082RF1	Buy	£ 1.59	05/05/2006

Rolls Royce operates in an effective duopoly with US company GE to supply gas turbines for aircraft, shipping and industrial purposes. Visibility of earnings is currently good, with an order backlog worth over 6 years' sales. Over half of the group earnings are generated by service revenues, which dramatically reduces cyclicality, and most sales are generated outside the UK, making the group attractive at a time when the UK economy is starting to weaken. Disappointment over the lack of a share buy-back caused a sell-off in the shares, thereby offering us an interesting entry point.

Sedol	Type	Price	Date
3283648	Buy	£ 4.319	03/04/2008

 

RPC Group is Europe's leading manufacturer of plastic packaging used across a range of markets. Despite being negatively impacted by the rising oil price (and thus the polymer price) over the past few years, the company managed to prevent a sharp profits decline thanks to its strong market position, which provided pricing power. Profits have nevertheless been in decline, but with the oil price now falling we expect the company's profits cycle to embark on an upwards trajectory. Recent results have been encouraging and the company has already secured price increases for 2007. With margin expansion and strong cash generation supporting a healthy dividend payout, the stock is now a buy in our view.

Sedol	Type	Price	Date
0719737	Buy	£ 2.596	04/01/2007
0719737	Buy	£ 2.56	03/01/2007
0719737	Buy	£ 2.499	27/12/2006
0719737	Buy	£ 2.50	20/12/2006
0719737	Buy	£ 2.499	19/12/2006
0719737	Buy	£ 2.50	18/12/2006
0719737	Buy	£ 2.495	15/12/2006
0719737	Buy	£ 2.498	14/12/2006
0719737	Buy	£ 2.50	14/12/2006
0719737	Buy	£ 2.493	13/12/2006
0719737	Buy	£ 2.463	12/12/2006