In the year to March 2010, sales at Sainsbury’s were £19.6 billion, profits-were £610 million and the dividend was 14.2p. Adding a little bit of inflation to these figures could be materially beneficial.

Brokers already expect sales to rise to more than £21 billion in the year to March 2011, with profits up to £660 million and the dividend increasing to 15.4p.

If Sainsbury’s can pass on some of the costs that are likely to come from higher wheat prices, those sales forecasts could need updating. And the effect could be particularly marked if other crops are affected by the hot summer that so many countries are experiencing.

Sainsbury’s is worth a closer look on other levels as well. The company has come rather a long way since John Sainsbury opened his first shop in London’s Drury Lane in 1869.

It now has more than 870 stores and serves 19 million customers every week. The group has made huge strides since Justin King became chief executive in
2004. Young, dynamic and charismatic, King rescued Sainsbury’s from years of decline, during which time it steadily lost ground to Tesco.

But even though he has done incredibly well, helped by the long-running Jamie Oliver advertising campaign, Tesco remains Britain’s undisputed supermarket champion, with more stores, more customers and a greater market share.

Some operators may view Tesco’s dominant position with despair. Sainsbury’s and its supporters believe this presents the group with a serious opportunity.

Unlike Tesco, the business is still under-represented in parts of the country, particularly Scotland, Wales and the North. And King is keen to expand, expecting to add 1.45 million sq ft of new retail space – equivalent to 35 average-sized stores – this financial year alone.

It is also expected to become more efficient over the next few years, which should translate into higher profits.

Midas verdict: The economic outlook is uncertain, but whatever the scenario, people still have to eat.

Sainsbury’s has become increasingly popular with consumers, the shares at 347p offer a decent 4.4 per cent yield and there is always the possibility of a takeover from the Qatar Investment Authority, which bid unsuccessfully once before and retains a 26 per cent stake. A solid investment. Buy.

Midas update: Lock in some gains at Shire after shares rise 49%

The drugs industry tends to be characterised by huge pharmaceutical companies on the one hand and small, struggling biotech companies on the other. Shire sits in the middle.

Valued on the stock market at more than £8 billion, it is certainly no tiddler. But it is a fraction of the size of GlaxoSmithKline and AstraZeneca and has a different profile.

Many drugs giants are worried about the future because medicines they have been selling for huge profits over many years are coming off patent, allowing cheaper copies to be made by rivals. By contrast, biotech firms are rich in ideas but worry about running out of cash before making a profit.

Shire has one big drug that came off patent last year – Adderall, which treats attention deficit disorder. But it has also brought several drugs to market in the relatively recent past, which means they are still well within their patent period and making lots of money.

The company specialises in three areas – attention deficit, digestive disorders and drugs for diseases that most people have never heard of, for example Fabry disease, Gaucher disease and Hunter syndrome. While these are rare, the effects are truly unpleasant, including kidney failure and liver malfunction.

Midas recommended Shire in August 2008, when the shares were 968p. Today they are 49 per cent higher at 1444p. At this price some brokers believe there is plenty more potential, while others suggest the stock will probably tread water for a while.

So who should investors believe? Last week, Shire issued figures for the three months to June 30 showing sales up 35 per cent to $849 million (£534 million) and operating profits up 134 per cent to $270 million (the company reports in dollars like most pharmaceutical groups).

Chief executive Angus Russell said full-year results would beat expectations and he aims to deliver average sales growth of 13 per cent to 17 per cent yearly until
2015.

Midas verdict: Shire’s fans point to its stable of young, profitable drugs and its excellent record on drug development.

It is also praised for increasing sales and profits even though Adderall is off patent.

Supporters cannot be faulted for their observations, but the shares have come far. Existing investors should sell half and keep the rest. New investors should look to buy if the price falters.

Traded on: Main market Ticker: SWP Contact: 01256 894000 or shire.com

That is one reason why this government, like its predecessor, is keen to encourage more use of public transport. As the use of buses and trains rises, we will need to use cars less, which should cut traffic and make the country greener. Of course, not everyone is convinced of this logic, but more and more people are, which means that the use of public transport is expected to grow steadily.

Go-Ahead Group should benefit from this trend. One of the country’s leading transport companies, Go-Ahead operates three train franchises – Southern, Southeastern and London Midland – and eight bus companies. Nearly a billion passenger journeys are taken annually on its services and it runs more than 3,500 buses.

Almost half of these are in London, but services run in the North-East, Oxford and all around the South. The group also operates Gatwick Express, one of the most efficient train routes in Britain.

Transport is a complex business, filled with a variety of regulations and subsidies. Different subsidies come into play for buses and trains and these vary around the country. In Go-Ahead’s case, for example, 30 per cent of bus passengers benefit from free travel. The company is then reimbursed by local authorities, but there are 280 different forms of reimbursement, ranging from 38 to 60 per cent of full fares.

In London, Go-Ahead works on a contract basis, running 90 Transport for London routes for a set sum that is topped up if it hits punctuality and service targets. These are becoming harder to meet and in April the group admitted that profit margins for its London division would be lower this year than last.

The news hit the shares hard and sentiment has been further affected by concerns about the Government’s Comprehensive Spending Review, due in October. Speculation has centred on whether Transport Secretary Philip Hammond will raise the age at which senior citizens are entitled to free bus passes, a move that could affect the frequency or even the viability of some routes. While this is possible, it would almost certainly take years to implement, during which time the number of fare-paying passengers is expected to rise.

Go-Ahead chief executive Keith Ludeman is seeing evidence of this as younger, more affluent commuters take to buses. Student use is rising too and the company is reaping the benefits in Oxford, Brighton, Southampton and Bournemouth.

The group is experiencing good growth on its train services as well. It earns about 65 per cent of revenues from trains and 35 per cent from buses, but buses deliver more than 60 per cent of profits. Ludeman hopes to reverse this trend as older, more demanding contracts are replaced by more profitable ones.

Go-Ahead recently started a joint venture with an American partner too, running school buses in St Louis, Missouri. This business is likely togrow over the next few years as it moves into more US cities.

Ludeman started his career in transport with a summer job as a bus conductor and has been in the industry ever since. A shrewd operator, his top priority is the dividend and the yield – seven per cent – is the highest in the industry.

Midas verdict: Go-Ahead has had a better recession than many of its peers and Ludeman is confident about the future. The shares are 1116p but should go higher. The stock is particularly attractive for investors in search of income and for those prepared to hold for three to five years. Buy.

Traded on: Main market Ticker: GOG Contact: 020 7821 3939 or go-ahead.com

Cannabis to work wonders for GW

About 100,000 people in Britain suffer from multiple sclerosis, many of them middle-aged women. For years, many have been breaking the law by seeking pain relief through smoking cannabis.

They may no longer need to. GW Pharmaceuticals has spent years working on ways to use the healing properties of the cannabis plant in a legal way and in June its cannabis-based drug, Sativex, was approved for sale here. Last week, Spain approved the drug as well and other countries on the Continent are expected to follow.

Midas Extra, the online subscription service for Financial Mail readers, recommended GW in April 2009, when Sativex was still in trials and the shares were 80p. Today they are 109p but there is still mileage in the stock.

Doctors often take time to understand and recommend products when they first come to market.

But sales should soon start to grow, particularly as MS sufferers are so keen to gain relief legally.

GW is also working with Japanese drugs giant Otsuka, researching ways in which the cannabis plant can help cancer patients. Otsuka recently extended their joint venture for another three years, during which time it will provide £8 million to fund GW’s research.

Midas verdict: GW is already making money and profits for the year to September are expected to more than double from £1.2million to £2.7million.

Investors who bought at 80p may choose to sell half their shares but they should keep the rest.

There is also scope for new investors at the shares’ current levels.

Traded on: Aim Ticker: GWP Contact: 01980 557000 or gwpharm.com

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The numbers add up for mobile group Bango

The japanese word for number is ‘bango’ and ten years ago entrepreneur Ray Anderson thought it was the perfect name for a pioneering British technology company.

Anderson founded Bango because he was convinced it was only a matter of time before the internet could be accessed by via mobile phones and he was sure this would lead to a wealth of opportunities for sharpwitted operators who knew their way around the world of IT.

A decade on, Anderson’s prescience is paying off. Bango offers mobile phone users an easy way to pay for games, music and other content quickly and securely so they can start playing, using or listening to the latest must-have item within seconds of deciding they want it.

To the unenlightened, this service may sound rather unnecessary. But to a growing number of mobile phone owners, particularly those under 25, making a call is pretty much the most banal way their handset can be used. Millions of people not only text, email and organise their life on their mobile, they also buy goods and download films, news clips, weather forecasts, cinema listings, bank statements and thousands of songs and games.

Some of these are free, but many are not. Until recently, the most widely used way to pay via a mobile was by texting your details to the content provider – the company supplying the music, game or whatever. But this service uses premium texts that are expensive and give users no real idea where their text is going, what precisely they are paying for or what the cost is.

Bango’s system is different. It works with mobile phone operators such as T-Mobile, Virgin and AT&T in America and with organisations such as CNN, the Cartoon Network, Sky, leading video games firms and even companies such as Interflora.

When mobile phone users want to pay for a new game, a Bango page pops up on screen offering the chance to do so by card or by adding the cost to the phone bill. If they choose the phone bill – which most do – they are redirected to the game. The technology knows what phone number is being used so the cost is simply added to the next bill.

The process is quick and extremely safe because no payment details are exchanged on screen. This is helping the company to grow fast. Last year, 11m customers worldwide used its services and in the 12 months to March 31 revenues rose 48% to £26.1m and the group delivered a maiden profit of £10,000 against a loss of £478,000 the previous year. In the year to next March, turnover is forecast almost to double to £51m and profits of £2m are expected.

About one billion mobile phones worldwide are already able to connect to the internet and the number of products and services sold over them is rising rapidly. Researchers expect that by 2012, mobiles will generate about £40bn of internet sales, against £13bn in 2007.

Bango is at the heart of this growth and it recently reached an agreement to provide payment services for any applications on a BlackBerry. The company also provides a service analysing who is buying what and how they are buying it so firms have a greater understanding of how to market their products.

Midas verdict: Since the dotcom bubble burst, IT companies have carried a large health warning. But Anderson has built several successful technology firms already, Bango has cash in the bank and it seems to be in the right place at the right time. With the shares at 97p, the adventurous should have a punt.

Traded on: Aim Ticker
BGO Contact: 01223 472777
http://www.bango.com

Wheels turn a little faster at Titan Europe

Titan Europe has had a rough recession. In 2007, the shares were trading at more than 230p, valuing the company at nearly £200m. By December 2008, the stock had sunk to just 7p and questions were being raised about its survival.

The company is an engineering business spun out of America’s Titan Inc in 2004. It makes huge wheels for tractors, dumper trucks, mobile cranes and similar large vehicles used by farmers, construction groups and miners. Some of its wheels are more than 5ft in diameter and cost £13,000 each – and that is without the tyre.

Titan also makes undercarriages for tracked vehicles used to build roads, harvest sugar beet, transport logs from large forests and a range of other activities. It even made the undercarriage for an underwater machine mining diamonds off the coast of Angola.

Most of Titan’s customers are involved in agriculture, construction or mining – all industries that have suffered to a greater or lesser extent in recent years. As a result, demand for its products fell sharply, particularly as many customers were afraid to buy new equipment and chose instead to run down machinery stocks.

Titan sales went from £450m in 2008 to £258m last year and the group tumbled from a pre-tax profit of £9.6m in 2008 to a £41m loss the following year.

But chief executive Mike Akers is nothing if not determined. He has cut staff and costs and has made significant changes to the way the business is run, so as economies recover, Titan is well-placed to reap the benefits. The group has also strengthened relationships with customers, such as Volvo, Caterpillar and John Deere, so it is winning market share from competitors.

Last month, Akers released an upbeat trading statement, saying sales were ahead of management expectations and the group was doing particularly well in China, Brazil and Australia. The news prompted brokers to upgrade their profits forecasts for 2010 to about £2.3m, rising to more than £11m in 2011.

Originally focused on Europe, Titan has branched out across the world in recent years and even has a 36 per cent stake in a fast-growing Indian company, Wheels India. The geographic spread should serve Titan well as it brings the business closer to its customers, many of which are doing more and more work in emerging economies.

From an investment perspective, Titan is an interesting case. Sceptics are put off by its £140m debt, which seems particularly large against its market value. But the company has a big presence in Italy and its loans come from two Italian banks with whom it has long and close relationships and which have supported the group through the toughest of times. The group is also able to repay the debt from cash flow over the coming years.

On the plus side, Titan’s assets – its factories, plants and equipment – are worth £160m. The shareholder register is intriguing too. Titan Inc still owns 22.9% and a private German wheel-maker, Mefro Wheels, owns 22.9%, which was acquired when times were really difficult. Close followers of the company believe one of these two businesses is almost bound to make a bid at some stage in the not too distant future.

Midas verdict: Titan shares have had a good run since last month’s trading statement, rising from 26p to 46p. But there is still plenty of mileage in the stock. Buy.

Seven-fold rise at soaring Rockhopper

Rockhopper has never made a profit, does not pay dividends and is expected to deliver losses this year and next. Yet it has been one of the best-performing stocks on the Alternative Investment Market this year and brokers believe that the shares will continue to deliver.

Rockhopper is an oil explorer based in the Falklands and there is every indication that it has made a truly significant offshore discovery in the past few months.

Midas first looked at this business at the end of 2007, when the shares were 46p. Six months later, Midas Extra, the midweek online subscription service, checked to see how Rockhopper was doing.

The shares had almost doubled to 96p. At the time, Midas Extra recommended shareholders should keep at least half their stock. Those who took that advice and held their nerve as the shares later fell back should now be feeling rather pleased with themselves. The shares are 326p so they have increased more than seven-fold since they were recommended.

Most of that increase has come since May 6, when Rockhopper said there was reason to believe that it had found oil, the first such discovery in the north Falklands. Since then, updates on the company’s Sea Lion Exploration Well have been consistently positive and the shares have rocketed.

So, should investors sell at these levels or keep faith? The most sensible answer is a bit of both. Even Rockhopper’s most fervent supporters believe that investors who bought at 46p should sell at least enough shares to cover their initial investment.

Midas believes they should sell a few more, just to be sure of booking a profit on this story while the stock is so buoyant. But there are several reasons to retain a substantial holding.

First, chairman Pierre Jungels bought 23,000 shares at the start of this month at a price of 299p each. Jungels has been in the oil industry for more than 30 years. He was chief executive of Enterprise Oil in the late Nineties and is one of the most highly respected people in the sector.

If he is buying stock, that is something of a recommendation in itself. Second, at today’s price, the firm has a market value of £600 million, which implies the Sea Lion Well has about 90m barrels of oil in it, according to City analysis. Oil watchers believe Sea Lion could deliver at least 300m barrels and possibly much more, suggesting Rockhopper is significantly undervalued even at current levels.

Midas verdict: While there are plenty of indications that Rockhopper will prove a deeply rewarding investment, there is always a chance that the well will disappoint. Investors should make sure they book some profits – then stay on board for what could be an exciting ride.

>> You can also sign up to ThisisMoney’s premium investment zone, which includes more than 150 exclusive share tips a year for just £10 a month.

Avon is breathing easily with £6m

In the late 19th century, when the British Empire was at its height, two young entrepreneurs bought a derelict mill near Bath on the banks of the River Avon.

The mill’s main attraction was its rubber-making facilities and soon the two men were selling tyres and other rubber products to railways, collieries and wagon works.

Business was brisk and in 1890 the company moved to larger headquarters in Melksham, Wiltshire. Avon Rubber has been there ever since.

The company has evolved considerably over the past 120 years and is now focused on two principal sectors  -  defence and protection and dairy. Concentrating on two such different industries may seem unusual, but they are linked by the common theme of rubber.

Avon has remained true to its roots in that respect, making products such as tubes for milking machines and gas masks for soldiers. In the old days, however, Avon was more of a standard manufacturer. Today its products are extremely sophisticated and the group is a market leader in both fields.

For many years the Ministry of Defence was Avon’s largest customer. In 2008, however, it won a ten-year contract with the US Department of Defense to supply gas masks and the filters that go into them.

The contract is worth up to $500 million (£310 million) and so far it is going extremely well. Masks are replaced every few years, but filters can be replaced daily or even hourly and Avon has already expanded its filter manufacturing capacity to cope with demand from America.

Avon’s masks were developed over several years and are almost certainly the most advanced on the market, helping soldiers to see better and breathe more comfortably than with any other mask.

This means that they should appeal to a wide variety of professionals involved in difficult and dangerous situations, so Avon chief executive Peter Slabbert is actively marketing them globally and to American government departments involved in domestic security and safety, such as the FBI, the CIA and police.

This is paying off, with orders from as far afield as Canada, Italy and Saudi Arabia, but Slabbert believes there is huge potential for further expansion. Brokers agree, predicting double-digit sales growth from the defence and protection business for several years.

Optimism in this area is noteworthy, not least because the MoD said in 2004 that it intended to stop using Avon and take up with a US manufacturer instead. Six years later, however, the rival masks have yet to be seen and the MoD has retained Avon’s services until at least 2012.

Even if it switches suppliers at that time, the effect on Avon should be manageable  -  the US military has 2.3 million potential mask users whereas the British figure is about 130,000.

On the dairy front, Avon has a 50 per cent share of the European market and 70 per cent of the US market  -  the largest in the world with nine million cattle. The division delivers steady growth and Slabbert is keen to expand by selling more tubes to other countries and related products to existing customers.

Avon has come a long way since Slabbert became chief executive in April 2008. For years, it was involved in a wide range of industries. Now it focuses on sectors where its expertise and knowledge can really add value.

The strategy is bearing fruit. In the year to September 2008, Avon delivered pre-tax losses of £3.9 million. By 2009, it produced £3.5 million of profit and this year, profits of about £6 million are expected, rising to nearly £8 million in 2011.

Midas verdict: Avon shares are 1011/2p but they should show considerable improvement over the next few years. Slabbert and finance director Andrew Lewis have worked hard to create an efficient and attractive business. The firm makes top-notch products for individuals and organisations that really need them and it is continually looking for ways to expand and improve its range. Buy.

MIDAS UPDATE: TT chalks up a 22% increase

TT Electronics shares several characteristics with Avon. Both are well-known British industrial names. Both lost their way and both chose to increase sales and profits by concentrating on products where they can offer the best to their customers.

In TT’s case, this means complex electronic kit, such as brain scanners or sensors in cars that automatically turn off the engine at traffic lights and start it up again when the accelerator pedal is pressed. Last Thursday, chief executive Geraint Anderson released an upbeat trading statement, saying sales in the first half of the year are well ahead of the same period in 2009 and costs are under control.

The group sells to large manufacturers across the world and has four divisions  -  aerospace and defence, medical equipment, industrial electronics and automotive. Despite concerns about global economic prospects, Anderson says the company is faring well and demand is growing.

Brokers forecast profits will soar from £800,000 in 2009 to £15 million this year and more than £19 million in 2011.

Midas EXTRA

Volatile markets can make it a nervy time for investors, but subscribers to Financial Mail’s online Midas Extra service have been raking in some spectacular returns by following our ‘One to Dump’ tips from trader-at-large Graeme Dickson.

Dickson suggests shares that he thinks will fall in price. Investors can then ’short’ the stock through a reputable broker using Contracts for Difference, which means having to put up only a percentage of the buying price.

In mid-April, Dickson, of Optiva Securities, suggested that subscribers should sell car dealership Inchcape when the shares were 3293/4p. With the end of the car scrappage scheme and a looming rise in VAT likely to dampen consumer spending, he was confident of a fall.

Shares crashed to 254p, though Dickson suggested putting in place a ’stop’ at 271p to protect profits should the shares start to rise again. An investment of £2,000 would have turned into £2,370 giving an 18.5 per cent gain in just two months.

Student accommodation group Unite Group has been another winner. Dickson told subscribers to sell with the shares at 242.45p in mid-April. They quickly slumped to his target price of 200p to give his followers a profit of £300 on a £2,000 stake.

You can follow Dickson’s weekly One to Dump tips and read his easy-to-understand guide to short selling in our Midas Extra service. For just £10 a month you also get exclusive tips from investments editor Joanne Hart and a strategy overview from fund management guru Justin Urquhart Stewart.

In such worrying times, can you afford not to subscribe to Midas Extra?

>> Sign up for your Midas Extra share tips at thisismoney.co.uk/midas-extra

Blooming Daisy proves it’s good to talk to clients

Traded on: Aim      Ticker: DAY    Contact: 0845 450 4520 or daisyplc.com 

Anyone who has ever tried to seek help or advice from BT knows that Britain’s largest communications company is woeful at communicating with customers.

Callers are moved from pillar to post and from one continent to another.

The employee answering the phone never seems to have any record of previous conversations a caller has held with the company.

Each call centre gives a different answer and the end result is, invariably, aggravation and annoyance.

The experience is bad enough for consumers, but for businesses, particularly small ones, dealing with BT can be beyond frustration.

This was at least part of the inspiration behind Daisy Group, a company set up in 2001 by young Lancashire entrepreneur Matthew Riley.

Daisy focuses on small and medium-sized businesses, delivering all their communications needs. It provides landlines, mobile telephony, internet access, the phones themselves and data storage, so firms do not have to keep it all on their own computers or in piles of paper in the office.

Daisy installs whatever is needed and deals with any problems customers have, either on the phone or by coming out to see them.

Its call centre is in Britain and, best of all, it has created a system so that anyone answering the phone to a customer can see at a glance exactly who they are, what Daisy services they use and whether they have any ongoing issues or concerns.

Customers are also given a single bill, which reduces administration and makes it easier to know exactly how much is being spent on phone calls and the internet.

This straightforward approach appeals to small companies, most of whom do not have the time, inclination or expertise to deal with phone and computer issues themselves.

Daisy now has 70,000 customers and last week reported revenues of £134m for the 15 months to March 31 and underlying earnings of £11m.

Though the business was set up just nine years ago in Riley’s garage, it joined the Alternative Investment Market last July, with a stated ambition to expand by acquiring other companies operating in the same sort of sector.

Extraordinarily, there are about 600 communications businesses in Britain, offering a variety of phone, mobile and internet services.

BT dominates the sector, with 51% of the market, Daisy has a 4% share, other operators, such as Virgin and Thus, have 15% in total, but 30% of the market is serviced by hundreds of small operators.

Riley hopes to consolidate this fragmented industry by buying a number of these firms and integrating them into Daisy.

He looks for those with obvious synergies and which, ideally, have some sort of problem – such as unwieldy software or fancy London offices that cost a fortune and are never seen by the outside world.

Eight acquisitions have already been made and Riley’s ambition is to create a company with a £500m turnover by 2013. Growth is not expected to be entirely driven by acquisition.

Much of the expansion should come from persuading new and existing customers to buy more products or services – phone and internet, rather than just internet, for example.

Clearly, the strategy is not without risk. The right businesses need to be found and they need to be integrated smoothly, which can be easier said than done.

However, Riley is extremely driven and even though he is only 36, he has already built three successful businesses and sold them on.

Chairman Peter Dubens is an extremely accomplished entrepreneur as well and many brokers believe Daisy will be sold to a large telecoms business once it has grown to a certain size.

Potential investors can also derive some comfort from the fact that HSBC, Lloyds and Yorkshire Bank have agreed to lend Daisy up to £75m for acquisitions.

Banks do not part with their money easily these days so the loan is recognition that Daisy is pursuing the right strategy.

Midas verdict: Daisy shares are 99½p. They have done well since joining Aim, but provided Riley retains his drive and focus, there should be plenty more mileage in the stock. Buy.

MIDAS UPDATE – Keep watching as Halma rises by 34%

Traded on: Main market  Ticker: HUMA  Contact: 01494 721 1111 or halma.com

Halma is an intriguing business. It makes products ranging from specialist lenses used by opticians to sensors that open doors between train carriages.

Customers include British engineers, US hospitals and Chinese railways, but all its products are related either to protecting lives or improving the quality of life at work and at home.

Midas first recommended Halma two years ago, just before the financial crisis kicked most of the world into recession.

Fortunately, it is relatively resilient – chief executive Andrew Williams focuses the group on areas with long-term growth potential such as healthcare, energy and urban development in emerging markets.

Halma also produces goods that are high-quality and prides itself on service, building factories near major customers to understand more fully what they want and need.

The strategy has helped Halma do well even in difficult economic circumstances. In the year to April 2010, profits increased 9% to £86.2m and the dividend was up 7% at 8.5p, the 31st consecutive year that the payout has been raised by more than 5%.

In 2008, the company derived 84% of its revenues from Britain, the Continent and America. But it has been expanding in emerging markets, which now account for 21% of group sales.

Over the next five years, Williams is keen to develop this trend, particularly in China.

Midas verdict: Halma shares were 206p two years ago. Today they are 34% at 276½p. Some investors may think this is a good time to sell but Williams believes the best is yet to come.

The group has cash in the bank, is actively looking for acquisitions and profits are forecast to grow steadily over the next few years.

This stock is a good hold for those who bought in 2008. New investors should consider dipping in on any weakness in the price.

Acquisitions give boost to Smiths News

Traded on: Main Market   Ticker: NWS   Contact: 0845 123 0000 or visit smithnews.co.uk

Ever since William Caxton introduced the printing press to Britain more than 500 years ago, we have enjoyed reading documents printed on paper.

The arrival of the internet was widely expected to change that trend but, intriguingly, the facts suggest otherwise.

Every year, sales of books, magazines and newspapers amount to about £8bn in this country and the figure has held reasonably steady for the past five years.

The recession has affected magazine sales marginally but more than 3,500 titles are still produced regularly, ranging from bestsellers such as OK! to specialist interest publications such as Tractor.

The resilience of the printed word is of particular interest to Smiths News, which acts as the middle-man between publishers and consumers for newspapers, magazines and books.

Originally part of WHSmith, it has been an independent company for the past four years, during which time it has become steadily more attractive, both as a business and an investment.

The group is responsible for delivering newspapers and magazines to supermarkets, newsagents and other retailers, often in the middle of the night. And it supplies bookshops and online operators, such as Amazon, with books as and when they need them.

Over the past year there has been a major change in the company’s activities.

There used to be three main distributors of newspapers and magazines – Smiths, John Menzies and Dawson News.

But Dawson collapsed into administration last year and its operations were bought by Smiths and Menzies. The deal left Smiths with more staff, more depots and £500m of extra annual revenue.

Smiths also bought book wholesaler Bertrams last year. It had been acquired by Woolworths for £41m in 2007, but it was left in no-man’s-land after Woolworths went into administration in 2008.

Smiths chief executive Mark Cashmore rescued the firm and bagged a bargain, paying about £15m for a business with 3m books in stock. But Cashmore has not been driving growth by acquisition alone, he has also been investing to create a business that offers better service and is more efficient.

The group has state-of-the-art technology to improve processes at its depots and cut costs in simple but logical ways, such as tracking lorries to make sure they take the shortest or fastest routes from depots to retailers.

Many of the company’s contracts are for five years, so it has about £8bn of secure revenue until 2015.

Margins are slim in the sector, but Smiths is still expected to deliver steady growth, with profits forecast to rise 13% to £36.8m in the year to this August and another 13% to £41.8m in the year to August 2011.

The firm also generates plenty of cash, so it is generous with dividends. Last year, it paid 6.7p. This year the forecast is 7.3p, rising to 7.8p in 2011.

Cashmore hopes to derive more cost cuts from the Dawson integration and is keen to boost revenues by moving into related areas, such as regional newspaper distribution.

>> Midas verdict: Smiths News shares are 108p, so the stock is yielding more than 6%. As Cashmore continues to develop the business, the price should tick up. In the meantime, the dividend offers investors a handsome income. Buy.

MIDAS UPDATE

Sit tight as Avanti share price rockets 

Traded on: Aim    Ticker: AVN   Contact: 020 7749 1600 or avantiplc.com

Avanti Communications could not be more different from Smiths News. Whereas Smiths is solid, dependable and centred on print, Avanti is adventurous, high-tech and centred on the internet. 

The company delivers satellite broadband services, which give people speedy access to the internet, even if they live in remote or rural areas. 

Midas recommended Avanti in May 2009 when the shares were 184p. At the time, the company was renting space from other satellite operators but was busy preparing its own, Hylas 1, for launch. 

It is due to be shot into space in September and Avanti has started building Hylas 2, which will launch in 2012. 

Hylas 1 is focused on delivering a high-speed internet service to homes in the UK, Ireland and parts of the Continent. 

Hylas 2 is much bigger, covering the whole of Europe, as well as Africa and the Middle East. The two satellites should have the capacity to help 1.3m homes but demand across these regions is estimated at nearer 100m homes so the potential for growth is substantial. 

Avanti, under chief executive David Williams, moved into profit last year, making £1.8m in the 12 months to June. This year should see further growth but, once the two satellites are launched, profits should really begin to motor. 

>> Midas verdict: Avanti shares have more than doubled to 4391⁄2p in the past 13 months. Brokers believe the stock is worth at least 650p, but the price is constrained because there is always a risk that the launch of Hylas 1 will be unsuccessful. 

Investors who bought last year could hedge their bets by selling 25 to 30%. New investors may want to dip a toe in the water – if both satellites do what they are supposed to, there is still real potential in the shares. 

Hogg’s global links provide a smooth ride

Traded on: Main market  Ticker: HRG  Contact: 01256 312600 or hoggrobinsongroup.hrgworldwide.com

There was a time in the Sixties and Seventies when air travel was faintly glamorous. People dressed up to go abroad and the flight was part of the overall excitement.

Today, flying is a chore. Airports are crowded and dirty, planes usually leave late and this year have frequently failed to leave at all.

Volcanic ash and BA strikes have left millions of travellers stranded overseas or unable to travel from home. This is frustrating for holidaymakers, but for those on business it can be catastrophic.

Hogg Robinson specialises in corporate travel, helping firms organise employees’ business trips as smoothly as possible. During the volcanic ash fiasco, for example, the company helped more than 40,000 travellers reach their destinations safely, simply by being plugged into airlines, rail networks and car hire firms all over the world.

The crisis highlighted the benefits for companies of using a well-connected global operator for their travel arrangements. Hogg received many plaudits from grateful travellers, cemented relationships with existing customers and gained exposure to many potential clients, who are likely to use the group once existing contracts come to an end.

Hogg Robinson does not focus exclusively on crisis management, however. Most of its business is derived from routine travel planning, including planes, trains, cars and hotels. The industry has changed considerably in the past decade as online booking has become increasingly prevalent. But Hogg Robinson has developed bespoke technology to handle this trend, so companies can access the firm’s online system and use it to find the cheapest and easiest routes and accommodation.

Some companies prefer a more old-fashioned service, using trained agents to plot foreign trips. Some prefer to do the arranging themselves, via the internet.

Either way, Hogg Robinson acts as an effective mediator and in every case, the group collates information on how employees are travelling, which airlines they are using, where they are staying and the average length of trips.

This data is invaluable for companies on several levels. In today’s environment, most businesses are keen to keep costs as low as possible. Knowing their overall travel budget for the year and how it breaks down can help secure substantial concessions from airlines and hotel groups.

Detailed knowledge about travel spending can also be used by employers to encourage employees to become more costconscious  -  going economy class within Europe, for instance, or even taking cheaper, less flexible flights.

Hogg Robinson’s customers span the globe, ranging from Volkswagen to HSBC and from Armani to Tesco. The company has been affected by the economic climate, as business people have postponed or cancelled all but essential trips. Even so, chief executive David Radcliffe delivered a 15 per cent increase in pre-tax profits to £28 million for the year to March 31 as a substantial cost-cutting programme helped improve margins.

Radcliffe held the dividend at 1.2p, but said the company hoped to increase the payout soon. He also said conditions have picked up lately as companies have started to make more travel plans and talk with greater optimism about the future.

>> Midas verdict: Hogg Robinson shares have not had a good recession. Trading at more than 60p in September 2008, they plunged to 5p in January 2009 and have been hovering near today’s 30p for most of this year.

At this price, they are cheap. Hogg has worked hard to streamline its business. It offers a range of attractive services to companies and profits should improve considerably once the economy picks up. Buy. 

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Lloyds bond offers generous interest

Traded on: Main market  Ticker: LLOY  Contact: 020 7626 1500 or lloydsbankinggroup.com

Over the past few months, Midas has recommended taking a closer look at bonds, particularly after the Stock Exchange launched its retail bond market for individual investors. This market makes it easier for private investors to see the prices at which bonds are trading and to buy or sell them.

Many bonds have done well and now there is the chance of investing in a new bond  -  a £50 million issue from Lloyds Banking Group. The bonds offer annual interest of 5.375 per cent, paid half-yearly.

The minimum investment is £1,000 and investors can increase this in units of £100. Anyone investing £1,000 will receive £53.75 interest a year, payable in two equal instalments in March and September.

The bonds mature in 2015, at which point investors should receive their initial investment back, unless Lloyds goes bankrupt. Events in recent years have shown this can never be ruled out, but it does not seem likely. Meanwhile, the bonds will be traded and the price may go up or down, depending on such criteria as the economic climate, Lloyds’ own prospects and the demand for interest-yielding assets.

Interested investors have until June 16 to apply via stockbrokers such as Brewin Dolphin, Charles Stanley, Killik, Redmayne-Bentley and Winterfloods. The bonds can be popped into an Isa or a self-invested-personal pension.

>>Midas verdict: Lloyds’ bonds offer an interesting opportunity. The interest rate is relatively generous, bonds are safer than shares and there is the chance to buy at the outset.

If the price rises, investors will make a capital gain, if the price is static or falls, they can hold until 2015. Buy.

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Bag a part in the new Mulberry’s expansion

Traded on: Aim Ticker: MUL Contact: 01761 234500 or mulberrygroupplc.com

For some women, a handbag is not a handbag unless it has Mulberry on the side. From Britain to Beijing, the bags are highly coveted. For years, however, this national and international recognition failed to translate into profitability.

Founder Roger Saul loved the business with a passion, but under his stewardship it floundered and from 1998 to 2003 delivered a profit only once. This sorry state of affairs prompted a change of direction. Singaporean billionaires Christina and Beng Seng Ong effectively took control of the firm and former finance director Godfrey Davis became chairman and chief executive.

Under Davis, Mulberry has been steadily transformed. Excessive expenses were curbed, unproductive international partnerships were unwound and the business was reestablished on a more realistic, sustainable footing.

Now the company has 23 stores and concessions in the UK and a further-24 spread over the Continent-Asia and the US. There are also 24 franchise operations overseas, operated with tried and tested partners. Mulberry has a thriving wholesale operation and it has begun to expand its website. 

Results for the year to March 2010 will be published next week and brokers expect profits to increase by more than 40 per cent to £6million this year, rising to £6.6million in 2011 and £8.7million the year after. A dividend of 2p is forecast for 2010, increasing to 2.2p next year.

Of course, Mulberry bags are not cheap, the average price is £500, but they are popular. Brokers believe the company has real potential, particularly in emerging markets, where conspicuous consumption is all the rage. Mulberry fits this bill perfectly and sales in Asia have been strong. The company also has enormous appeal in America, where consumers are seduced by the quintessential ‘Englishness’ of the brand.

•• Midas verdict: Mulberry shares have come a long way over the past year and now stand at 2021/2p. City analysts believe that the shares should rise to more than 250p over the next 12 months and considerably higher over the next five years. Buy.

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National Grid – a take it or leave it offer

Traded on: Main market     Ticker: NG       Contact: 0871 664 0500 or nationalgrid.com

Over the past few days more than a million people have been sent a letter from National Grid.

Responsible for distributing gas and electricity round the country, the company was born out of the old regional electricity companies and British Gas. When it became a company in its own right back in 1995, investors who had bought into the gas and electricity privatisations were given shares in National Grid.

The company has been fairly successful, developing a robust network in Britain and expanding into the US. On May 20, chief executive Steve Holliday announced the group was raising £3.2billion in a two-for-five rights issue, offering shareholders two new shares at 335p each for every five they hold. National Grid plans to use this to invest about £22billion over the next five years upgrading its network.

National Grid is likely to deliver a steady increase in profits whatever the economic environment. In other words, this is a classic defensive stock, well worth having when times are as uncertain as they are now.

Most individual shareholders have about 75 shares each at the moment. If they subscribe to all their rights, they will have to pay £100.50 for 30 new shares – and will tick Box 1 in the provisional allotment letter they have received from National Grid.

If they decide not to take up their new shares at all, they will tick Box 3 and receive a cheque in compensation. The amount they get will depend on the price at which the nil-paid rights are trading on June 11 – equal to the underlying value attributed by the market to the rights.

At present, these nil-paid rights are trading at about £1.50 so they will receive about £45.

There is another option – to sell some nil-paid rights and use the proceeds to buy new shares. This is the ‘cashless take-up option’ or Box 2. For shareholders with 75 shares in National Grid now, this option will give them about six new shares, but they will end up paying about £10 in broking fees.

•• Midas verdict: Shareholders who can afford to buy new shares should do so. Those who cannot and hold fewer than 500 shares should sell their entire holding.

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Daring investors orbit Jupiter’s float

Virtually every investor in Britain has either put money in a Jupiter fund or thought of doing so. Now there is an opportunity to buy shares in the business itself.

The fund manager hopes to overcome choppy market conditions and list on the stock market. The flotation of about 30 per cent of the company will involve issuing 122.4million new shares worth between 150p and 210p, valuing the entire group at between £718 million and £868million.

The exact price of the new shares will be announced on June 16 and will depend on investor demand over the next ten days. If there is plenty of appetite for the shares, they will be priced at the top end of the range. If not, they will be priced nearer 150p.

In most cases, fund management groups float because the management or the owners (frequently private equity groups) want to sell out. Jupiter is reassuringly different.

The firm is 80 per cent owned by its staff and 20 per cent owned by private equity. Both parties are reducing their holdings, but even after the flotation, management will own about 45 per cent of the shares and private equity will own 20 per cent.

Most of the new shares will go to institutional investors but individuals will be able to apply for stock, primarily via brokers Hargreaves Lansdown and TD Waterhouse. So the question is – should anyone bother?

Jupiter’s timing is either  brave or foolish – markets are turbulent and the outlook is uncertain.

However, the fund management team and chief executive Edward Bonham Carter are highly respected both for their stock-picking skills and down to earth style. And the firm promises to pay a progressive dividend, with a yield of about 4.5 per cent.

•• Midas verdict: A few weeks ago, when talk of Jupiter’s flotation first surfaced, the prices under discussion were much higher than they are today. Buying shares in a fund management firm is not without risk, as it exposes investors to the ups and downs of the stock market. But these shares have been priced to go. So, for the more adventurous investor, it may be worth having a punt.

Contact: 020 7412 0703 or jupiteronline.co.uk

Dogs also feel the heat from BP catastrophe

When something looks too good to be true, it usually is – and nowhere more so than in the financial markets.

Time and again, investors are seduced by unscrupulous operators offering exceptional products at exceptional rates – only to be disappointed, or even ruined, when the operators, the rates and the products turn out to be completely bogus.

Looking at the dividend yields in today’s FTSE 100, the too-good-to-be-true adage springs to mind because some of these yields do look extraordinarily good.

Calculated by dividing the dividend by the share price, the yield shows how much annual income investors are receiving from their shares.

This is particularly relevant today. Interest rates on savings are at historically low levels so dividend income can provide a meaningful alternative.

Also, plans outlined by the Government to increase capital gains tax to levels approaching those of income tax should encourage more shareholders to consider investing for dividend income rather than simply for share price appreciation.

Most investors in shares tend to think primarily about whether their stocks have risen in price, but the Midas Dogs of the Footsie portfolio has a slightly different agenda.

It tracks the performance of the ten highest-yielding stocks in the FTSE 100 index.

The experimental portfolio looks at prospective yields, which are calculated after dividing the next forecast annual dividend by the current share price.

Midas reassesses the portfolio every three months, throwing out stocks that are no longer in the top ten highyielders and replacing them with those that are.

Back in February, the Dogs were United Utilities, BT, Severn Trent, Scottish & Southern Energy, Cable & Wireless, BP, Man Group, Royal Dutch Shell, Standard Life and RSA (formerly Royal & SunAlliance).

To an extent, our adage was proved right. Man Group’s yield stood head and shoulders above its peers in February. At 11.2%, it was almost five percentage points higher than its nearest rival.

Last week, the company said it was rebasing its dividend to a more sustainable level – corporate speak for cutting the payout to a price it can afford.

Next year’s dividend is expected to be halved and the yield on the shares has fallen to just under 6.5%. The stock is still a Midas dog but it is no longer a supercharged one.

However, three members have been ousted from the portfolio – United Utilities, Severn Trent and Cable & Wireless.

United Utilities has been among the highest-yielding stocks in the FTSE 100 for years, but the company has been hit by demands from the water regulator, Ofwat, which has told all the water companies to keep prices extremely low while modernising Britain’s ageing water system.

Now United Utilities and Severn Trent cannot afford to be as generous to shareholders as they were.

Their dividends are coming down and so are their yields. Cable & Wireless has split itself into Cable & Wireless Worldwide, serving business customers, and Cable & Wireless Communications, serving consumers.

The business arm remains in the FTSE 100, but the yield on the shares is not quite high enough for the company to be a dog.

The Dogs portfolio includes three new entrants – Aviva, British Land and Vodafone.

Four members of the updated portfolio are delivering dividends of more than 7% – Aviva, BP, RSA, Scottish & Southern and Standard Life – and it is not difficult to see why.

Shares in BP have fallen 15% since February on worries about the cost of the oil spill in the Gulf of Mexico.

Aviva, RSA and Standard shares have all suffered from market concerns about the impact of the turmoil in Continental Europe on their investment portfolios, so much so that Aviva is now yielding almost 8.3%.

So, does this mean the yields are too good to be true? In the short term, probably not – in the longer term, quite possibly.

The size of any yield depends on the share price and the forecast dividend.

If the share price falls or the dividend forecast rises, the yield rises too. Conversely, if the share price rises or the dividend forecast falls, the yield declines.

Among our four top-yielders, none of them has said anything terribly menacing about future dividend payments, though it is difficult to predict what BP will be forced to do if it continues to spend billions trying to plug the leak in the Gulf of Mexico.

In the longer term, the life insurers should either see their share prices rise as economic fears ease or their stocks will fall (and possibly their dividends) if market conditions remain tumultuous.

For now, however, investors should enjoy these handsome yields, as even the bottom six are all yielding more than 5.7%.

Sadly though, the share price performance of our portfolio continues to disappoint.

The Midas Dogs portfolio was originally launched in 2001, but re-launched in 2007 when market conditions seemed to be far more promising than they had been six years previously.

At the time, we invested a notional £10,000 in the FTSE 100 and a notional £10,000 in ten Dogs. The £10,000 invested in the FTSE had fallen to £8,236 by February of this year and is now worth even less, at £8,030.10.

The £10,000 invested in the Dogs was worth £5,128 in February and is now worth an even less impressive £4,782.20.

The most recent underperformance is upsetting and can be attributed at least in part to BP’s predicament and rather disheartening price falls at RSA and Standard Life.

For investors who joined us in this experiment in 2007, the results have been extremely poor. But the situation could be about to change.

In today’s environment, high-yielding stocks in the FTSE 100 may not be a bad place to invest. The Dogs have got to get back on their feet some time soon.

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