Inmarsat sends out positive signals

Inmarsat

419 ¼p +24½p

Questor says Buy

Inmarsat, the satellite group which provides telecoms services to organisations ranging from aid agencies to the armed forces, yesterday delivered an upbeat message of its own.

While many companies are sounding profits warnings or missing targets, the £1.9bn group said that its figures would beat expectations. "We have seen no impact of global economic weakness in the usage and take-up of our services," said chairman and chief executive Andrew Sukawaty. "We are firmly on track to deliver revenue growth for the full year well ahead of the top of our target range."

Inmarsat rose 6pc in response to a 16.4pc rise in third-quarter revenue to $162.5m (£104m). Pre-tax profits improved from $33.6m to $53.5m, aided by strong growth across the board.

The growing demand for broadband services has boosted Inmarsat. It has 11 satellites, each the size of a London bus with solar panels as big as a football pitch. They enable phone and internet communication and the delivery of data to and from remote areas.

With on-going geopolitical tensions, demand is likely to continue for Inmarsat's services. Yet it is not just warfare that should boost the company but also a changing society. People want to be in touch constantly and 11 airlines, including Ryanair, have agreed to use Inmarsat's satellites to enable phone calls to be made in the air.

Revenues from airline passengers are unlikely to feed through for a couple of years but Inmarsat has other steady sales streams. Government spending accounts for 40pc of its business and, even if troops were withdrawn from Iraq, reconstruction workers are expected to use its services.

Inmarsat shares have fallen in recent months but not because of issues with the group's underlying business. Uncertainty has mounted as to whether Harbinger, its 28pc shareholder, will make an offer for the group.

In July, the US hedge fund suspended bid talks, due to the lengthy regulatory process involved, but said it remained interested in buying the company.

While Inmarsat is not currently in an offer period, there is the hope that it could still be taken over should markets settle. Since floating three-and-a-half years ago, Inmarsat has grown its dividend by an average of 5pc annually. Buy.

Dignity

609½p +36p

Questor says Hold

There are few things which are guaranteed in these uncertain times although, as the Benjamin Franklin saying goes, death remains one of them.

Funeral operator Dignity proved that point yesterday as it unveiled a 9.6pc rise in revenue to £130.7m for the 39 weeks to September 26.

Although the death rate has dropped by 1pc compared with a year ago, spending on funerals has increased despite the credit crisis. Dignity, whose services also include obituary notices, flowers and legal paperwork, said the average spend on a funeral has gone up by 5pc to £2,000 – although that figure excludes an additional £600 to £700 for cremation or grave site costs, plus fees for a doctor and a minister.

There are other signs that, while not completely immune from the credit crisis, Dignity should fare well. It sends out its invoices after completing its services, due to the sensitivity of its work, but bad debts are currently static at less than 1pc.

Panmure Gordon suggested the recent fall in Dignity's shares may be due to its US peer SCI missing its guidance to the market in an update last week.

However, the broker says this is unjustified as the two businesses have different models. It has repeated its 12-month price target of 931p for the shares.

Dignity has £280m of debt financing but its bonds are fixed at an average 6.7pc interest and are only due to be repaid in 2031.

Few companies remain steady in this economic climate but Dignity is one. Trading at around 16 times earnings, the shares are worth holding on to.

Majestic Wines

137¾p -10¼p

Questor says Hold

Majestic Wine is the kind of company that lends itself to analogies. When the retailer does well, its profits "sparkle": when it does badly, it gives shareholders a "hangover". So how best to describe yesterday's dire interim results, which showed that profits over the six months to September 29 fell by 25.5pc to £5.6m, their lowest since 2005?

They were like a shot of something strong and nasty, making the reader sit up and take note.

The chain said that like-for-like sales had fallen by 2.1pc over the half but that this figure had deteriorated to a 4.7pc decline over the first five weeks of its second half. The figures led to full-year profit forecasts being cut.

One of the reasons that the results were so noteworthy is that Majestic has historically enjoyed very strong growth.

New chief executive Steve Lewis, who only took over at the helm in August, has his work cut out.

So, are the shares worth picking up? We do not think that they are. Yet.

We would advise readers to wait until after Christmas, which – if current trends persist – does not look as if it will be a roaring success.

We do not think that Majestic's business model is bust but the consumer slowdown and increased competition from supermarkets is clearly hurting the company. Hold.