Investment Column: Amlin is the best of a good insurance bunch

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Amlin

Our view: Buy

Share price: 350.75p (+7.75p)

When The Independent polled a series of professional investors at the start of the year, one of the most popular names picked out as a potential winner in 2009 was Lloyd's insurance group Amlin.

With premiums in the non-life sector expected to jump in 2009, after an expensive 12 months last year, what better time to buy the stock, especially when a number of the groups in the sector, such as Catlin, have announced significant rights issues in recent weeks to ensure that they are able to take advantage of the higher prices?

Amlin's chief executive, Charles Philipps, says there will be no such rights issue from his company. Why dilute the stock if you do not have to, he asks, adding that the group is already well capitalised and it is an indication of the firm's financial strength that they will not be going back to the market to ask for more money.

The group issued its full-year results yesterday, and there cannot be many examples in recent months of a company telling the market of a 73 per cent drop in pre-tax profits, only to see the shares up by 2.3 per cent the same day.

Mr Philipps says the poor numbers are due partly to a superb 2007, and the fact that hurricanes Ike and Gustav were particularly expensive for the industry. Nonetheless, he is pleased with the group's overall performance in underwriting, investment and risk management.

Trading at a premium to others in the non-life sector, the stock is not cheap, but that does not worry analysts at Numis. "Given the recent share price fall [down 8 per cent in the last month], we are likely to maintain an 'add' rating and continue to suggest that Amlin deserves the premium rating given its underwriting quality and capital flexibility," they said.

The premium does not overly bother us either. We like the sector, especially as insurance charges hike in 2009. We think Amlin is the best of a good bunch and investors should jump in.

Keller

Our view: Sell

Share price: 527p (-57.5p)

Keller's chief executive, Justin Atkinson, concedes that it is difficult for investors to make a judgement on the FTSE 250 ground engineering specialist. On the one hand, 2008 was a cracking year, beating forecasts with full-year pre-tax profits up 10 per cent to £113m: with work being done in many countries, Keller has been able to offset most local difficulties, and in the last three months, before yesterday's numbers, the stock was up 22 per cent.

During these last three months, however, Mr Atkinson admits several of Keller's markets got softer, and at a rate that took his management team somewhat by surprise. He also says 2009's numbers will not match those of last year, and as for those little green shoots of recovery: not a sign.

The investment case, according to Mr Atkinson, is that Keller has a track record of beating the market, and that the dividend is up by 15 per cent.

The market was not sold on the idea yesterday, with punters taking profits and sending the shares down by 9.8 per cent. The analysts were hardly convinced either. "This is a quality company and will come through this downturn in a stronger position. However, with headwinds in all its end markets, pressure on numbers will remain on the downside. On 8 times 2009 [price-earnings ratio] we are moving from buy to hold," said those at Oriel.

We are impressed by Keller's recent performance. We think the shares are coming off a high, however, and with no prospect of the macro situation improving, we can only be sellers.

Goals Soccer Centres

Our view: Hold for now

Share price: 112.25p (+2.75p)

Anyone who has ever played five-a-side football will know how physically punishing it can be, making yesterday's full-year results from Goals even more remarkable.

The chief executive, Keith Rogers, whose company runs 31 specialist sites, is almost prepared to say that the industry is recession-proof: with pre-tax profits up by over £1m to £8.2m, it is difficult to argue with him.

Or is it? Mr Rogers says that the start of 2009 has been great and that people are not likely to give up their weekly thrash on a football pitch. However, if you accept his argument, Goals' shares would be enjoying almost vertical growth. They are not. In the last year, the stock has dropped by 64 per cent.

Operationally, the group is doing well, and Mr Rogers argues that investors simply need experience of the industry.

The experts are keen. "We estimate 14 per cent earnings-per-share growth in 2009 and view the shares on a p/e of 7.5 times and 18 per cent free cashflow yield as good value," argue the analysts at Brewin Dolphin.

Being cautious in these markets, we would prefer to hang back and see what happens to the stock over the next few weeks before buying. Hold for now.