Shares spotlight: Autonomy & Premier Foods

By THIS IS MONEY
Updated:

 

Graeme Dickson is a sales trader at Lite Financial, an independent brokerage. He has been trading the financial markets for nine years, and is a regular contributor to several leading investment periodicals.

Here he focuses on one stock of note from the last few days' trading, and highlights one to watch out for in the coming week.

One you might have missed

Although there were a number of noteworthy stocks that caught the markets attention last week, the one that stood out to me was that of software developer Autonomy (AU.).

The company processes unstructured information such as text, voice or video in a way that can automate operations such as, for example, monitoring television channels for an intelligence agency.

The company's product is perceived as a 'must have' in the large corporate and governmental world in order to aid efficiencies and improve a company or individuals productivity.

The company has been awarded $85m worth of contracts since 27 June in industries such as banking, pharmaceutical and entertainment.

The board issued a statement on Monday morning stating that it was to exceed consensus forecasts for its second quarter results by 22%, which makes a refreshing change from the conveyor belt of profits warnings and share suspensions that have plagued the market in the last two weeks. The stock is up 7.5% on the week.

The company trades on a forecast 2010 price to earnings ratio of 25 times, which for some institutions and private investors is too much to pay in an uncertain market.

Nonetheless if the company can deliver stellar results and attract orders from a whole host of different industries in what most would consider as difficult times, what is the share price going to do when things look a bit rosier later down the line?

One to watch out for

For next week the stock to watch out for is Premier Foods (PFD). The company owns about 43 brands including Branston, Hovis, Lloyd Grossman, Mr Kipling, Oxo and Quorn.

As far as its share price is concerned it has received a royal stuffing primarily on the back its high level of debt while food price inflation has not helped.

The company is able to pass some of the price increases onto the final consumer but, with cut-price competition between the supermarkets, the Tesco and Sainsbury's of this world are only too keen to keep the suppliers prices down.

On Tuesday the company is due to update the market with a trading statement ahead of its half-year results. In the short-term I don't think the omens are entirely good.

The company has some very attractive brands and a wiling buyer with cash in hand that could sort the firm out after it made a debt-led acquisition of RHM Foods a few years ago.

But debt - and high levels of it - is a taboo subject in the financial world. Also, soaring cost inflation and cost cutting measures from the supermarkets are going to make it very difficult for the company to set the world alight.

The directors have been buying the shares, which is always a good sign, although by no means a sure sign in the short-term that a stock is going to perform well.

I personally am inclined to short-sell the stock into the trading statement although it might make more sense to analyse the trading statement on the day and make a decision prior to 8am on Tuesday morning.

In my opinion, without a buyout, the company might have to consider some form of rights issue. Given the amount of money the market has been tapped into for other stocks this might prove to be harder than we think.

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