Investment bank to benefit from economic cycle

By Graeme Dickson
Updated: 12:23 EDT, 2 March 2011

Keep an eye on investment banking and private-client brokerage Evolution Group (EVG) over the next few weeks as the company gets closer towards its preliminary results on 24 March:

The £182 million company that has approximately £131.2 million in net assets, of which £62.5 million was in cash or cash equivalents, had a particularly hard year last year thanks to a subdued secondary market for both equities and fixed income, with the latter particularly hard hit comparison wise due to an exceptionally good year in 2009.

Despite a hard year in 2010, it was still voted in Credit Magazine as the best fixed income agency for the year.

Its other subsidiary Williams de Broe, a brokerage that has been in business since 1869, has built assets under management to £5.5 billion with the aim of getting it to £10 billion within three years time.

In a recent trading statement, the group has a growing pipeline of corporate transactions, but said that its business was dependent on the broader economic and business cycles.

Given the higher inflation rate and low interest rate environment, institutional and private clients alike are likely to seek ways to protect their income and/or assets from being eroded by higher prices.

Investment banks and brokerages such as Evolution should benefit as a result: the 2.1p per share in earnings it is forecast to attain for 2010 and 3.2p in earnings expected in 2012, the stock looks set to recover during the course of 2011, underpinned by a strong balance sheet.

Aim for an objective close towards the 200 week exponential moving average of 100-106p while a close below 66p will not look good for the stock.

Update

OMG (OMG) – tipped as a buy at 43.75p, the stock closed yesterday at 42.5p. Sit tight as we wait for developments.

ZincOx (ZOX) – tipped as a buy at 60p, the stock closed at 54.25p. Very disappointing in the short-term but I am still encouraged that the shrewd Aldersgate Investment Managers have increased its holding. Note that North Korea has been talking about renewed warfare with her southern neighbours, which might temporarily damage sentiment in the near term.

Pendragon (PDG) - tipped as a buy at 23p - it closed at 23.5p. The company came out with better than expected pre-tax profits for the full year up to December 2010 at £25.2 million against a forecast of £23 million. Pendragon is aiming to reduce its £325.5 million debt by £40 million over the next year, which should additionally please the market. Continue to hold.

Cyan Holdings (CYAN) – suggested to buy at 1.325p, the stock closed at 1.15p – keep holding for now as we await contract developments. GB Group (GBG) – suggested to buy at 36.75p, the stock closed yesterday at 36.875p. The stock is a bit lacklustre given the recent positive update. Keep the stop based on a close below 32p.

Europa Oil & Gas (EOG) – suggested to buy at 30.25p, the shares closed yesterday at 36.25p. Place a stop on the stock based on a close below 32.5p.

SocialGo (SGO) – suggested to buy at 3.55p, the shares have drifted to 3.05p. Keep holding as we await for version two to come out which should markedly improve the user experience while the lowered tariff prices and the phasing out of the 'free' versions of its software should turn this loss making company to a profitable one by the middle of this year.

EMED (EMED) – suggested to buy at 12.25p, the stock closed yesterday at 16p. The company has gone quiet on the PR front over the last month, despite bullish rumours of imminent approvals for a transfer of mineral rights to the form. Keep the stop at 14p.

Active Energy (AEG) – suggested to buy at 6.13p, the stock closed yesterday at 3.375p. Two weeks ago I spoke briefly to the PR agent that represents Active and that the best explanation for the fall was that it was more to do with a 'distressed seller' rather than anything more sinister to do with the company. Operationally I am told the company is performing well. Hold for now.

Bango (BGO) – suggested to buy at 142.5p, the stock closed yesterday at 131.5. The stock issued a profits warning on Monday and should have been closed after it went below the 120p mark, as suggested as a stop last week.

Edenville (EDL) – mentioned as a buy at 1.195p, the stock closed yesterday at 1.585p. Having already suggested to sell one's investment stake out at 2.51p, investors should now be enjoying a 'free ride' for those that followed this course of action. Hold the balance for now.

Weatherly International (WTI) – suggested to buy at 8.1p, the shares closed yesterday at 12.875p. Ambrian Capital issued a buy note last Friday, increasing its price target 50 per cent to 18.8p, which strikes me as pretty conservative given the production profile and exploration upside. Sit tight as we await further developments.

Toumaz Holdings (TMZ) – tipped as a buy at 8.625p, the stock closed at 7.375p. A few weeks ago the company announced that Dr. Patrick Soon-Shiong used his investment vehicle, California Capital Equity LLC to buy a 2.46 per cent stake at a premium to the stock market price of 8.83p a share. Continue to hold.

Renewable Holdings (REH) – tipped as a buy idea at 16.25p, it closed yesterday at 17p. The stock is drifting from its recent highs but still trades at a huge discount to its Net Asset Value. Hold for now.

Bowleven (BLVN )– tipped as a buy at 177.25p, the stock closed at 338p yesterday. Suggested nine weeks ago to sell half after an initial 102.8 per cent gain, the balance should be retained as we await further progress from its Sapele-1 drilling campaign and the Etinde permit. Tissue Regenix (TRX) – suggested as a buy at 16p, the stock has picked up from its lows and is now trading at 11.5p. Keep holding as we await trial results from its NHS trials and further product developments.

The material for this report comes from Sharescope. The writer does not hold any shares or derivatives in the above mentioned companies except EMED, SocialGo and Weatherly International. Some clients of Optiva Securities may hold shares in the above named mentioned companies.