Four great value plays

published 19 February 2007

Every issue, a professional investor tells MoneyWeek where he'd put his money now. This week, Peter Webb of Unicorn Asset Management shares four good value stocks from his portfolio.

Abacus (ABU), Europe's fifth-largest distributor of electronic parts, is a real value play. Industry data confirm that a strong recovery is underway in its core UK market, of which it has a 14% market share, comprising 50% of turnover. Recent acquisitions Axess Technology and Deltron mean the group has an even stronger platform on which to build its European operations, so its target market share of 5% in all major European countries looks achievable. Abacus's strong operational gearing is likely to mean earnings upgrades in due course. At a share price of 195p, it is on a prospective p/e of 10.7 and yield of 3.8% for the year to September.

Global recruitment and outsourcing firm Harvey Nash (HVN) is enjoying buoyant trading conditions. It specialises in information, communications and technology, where demand for personnel has been picking up along with general business investment. And this should continue the typical recruitment cycle is seven years and we are just two years into the upturn. Harvey Nash has a strong global presence, is cheap compared to its peers (trading at just one times net-fee income) and recent trading has been positive. I believe the sector is ripe for consolidation and the firm could either drive mergers and acquisitions within its sector, or be a target itself. At 78p, the shares trade on a current year p/e of 15, but I expect 20% growth in the year to January 2008. The group is also expected to announce its first dividend for some time after year-end results.

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Compel (CGR) is a leading provider of information technology, and is made up of two units, "Enterprise Solutions" and "Short-Term Rental Solutions". Recovering business confidence and investment is driving demand after spending fell after the tech crash. Compel is Oracle's top UK partner for business software, while Hamilton Rentals, part of the Compel group, is the UK's largest IT rental business. At 115p a share, the group is on a p/e of 13.4. In recent years, cash generation has been good and Compel had net cash of £5.8m at last count. It looks a good value play due to its market-leading positions, a strong history of cash generation and improving profitability, and a tangible net asset value of 50p a share, including 18p a share cash. Compel also operates in fragmented but high-growth markets and there are many acquisition targets open to it, or it could become a target itself.

It has also benefited from the Government's Decent Homes Programme, which is driving investment in the social housing stock. Results for 2006 will hit the upper end of City hopes, and the group has won several new contracts, with a forward order book in excess of £1bn. For 2007, 94% of expected turnover is already secured, as is 84% for 2008. At 360p a share, Mears is on a forecast p/e of 20.3 for the year to December 2007. But given the long-term nature of its contracts and huge potential for growth in allied services, I believe there is more to come for shareholders. The recent resignation of a CEO brought in to manage a more pedestrian pace of growth has seen the share price fall to an attractive level. Mears has superb market visibility, is strongly cash generative and very profitable. I believe it will become larger and more successful than it is today.

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