Midas share tips: Shore to ride out storm

By This Is Money
Updated: 07:46 EDT, 9 September 2007

Shares in boutique investment bank and stockbroker Shore Capital dropped almost 5% as investors cashed in on a rise that came ahead of last week's results. But the dip to 70½p that followed Wednesday's figures could be seen as a buying opportunity.

The company is a successful broking and banking business set up by executive chairman Howard Shore. While it could be exposed to some of the turbulence rocking financial markets, Shore is also a more diversified business than many of its peers.

It has lines of business - notably a potential lucrative interest in hotels - that could provide growth outside broking and banking and help the group weather any troubles in financial markets. Half-year results showed profits to the end of June of £12.1m. up 29%.

Shore operates across the range of traditional broking and banking services and it would be rash to assume it faces no risks from any potential market slump. But its exposure is limited.

The chairman declared last week that the group had no direct exposure to credit markets.

Another area likely to be hit by the recent turbulence is new flotations, typically a core business for an outfit such as Shore. But there, too, its exposure is small, with just ten% of its profits coming from its work on public share offerings.

On the positive side, the group has a range of other interests. The most notable is its ten% holding in Dawnay Shore Hotels, which bought the Paramount chain of Hotels in 2004.

DSH own 20 four and five-star premises, valued in total at more than half abn pounds, including landmark hotels such as the Carlton Hotel in Edinburgh and The Lygon Arms, which occupies a Tudor mansion in Broadway, Worcestershire.

Last month DSH unveiled a deal to lease the sites to Spanish hotels group Barcelo. DSH will earn a minimum return of £28m from the lease but will also share in any rise in profits for Barcelo. It is thought DSH will use the money from the deal to refinance the business and return a large quantity of cash to shareholders, including Shore Capital.

• Midas Verdict: With shares at 70½p, Shore Capital is already valued at a premium to other brokers of its size and it may suffer if market turbulence gets any worse.

But Shore is far more diverse and as seen in the hotels operations has guaranteed income from sources outside financial markets, not to mention potential share in the expected expansion of the hotels arm.

For those willing to brave the market risks, the shares are a buy.

With stock markets emerging from a summer of turmoil, now may be a good moment to revisit a company picked out by Midas at the start of the year.

Shares in the fledgling Plus Markets stock exchange are up 23% since our recommendation.

The company has emerged from the Ofex business, which offered a trading platform for shares in small often familyowned companies. But under the leadership of Simon Brickles, a former London Stock Exchange executive, the group has become far more ambitious in its plans to rival the LSE itself.

The group has delivered precisely as expected in its plans to offer services to rival the London Stock Exchange, winning Recognised Exchange Status from regulators and taking away from the LSE more share trading in Alternative Investment Market stocks.

Its shares ended last week at 24p, up from 19½p in January. But like everyone, its shares have suffered in the recent turmoil. At one point this summer they stood at 32p, a huge 64% gain from January. Midas is confident they will see this level again within the year. Hold on.