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Wednesday tips round-up: Arm, Pearson, Braemar Shipping...

Date: Wednesday 27 Oct 2010

Wednesday tips round-up: Arm, Pearson, Braemar Shipping...

When your shares are trading on more than 45 times’ this year’s earnings, a degree of investor nervousness is inevitable. So yesterday’s plunge in ARM Holdings was more a case of the market trying to find reasons to sell and take some profits.

ARM investors have had to live with sky-high valuations for years. The company, which does not manufacture but makes its money from licensing deals and royalties on the chips it designs, has ridden the wave of mobile phone expansion and the rise of the smartphone, which takes more of its output. There is no particular reason why investors should not take some profits, but they should also stick in there for developments, says the Times.

Pearson, whose US education business accounted for 43% of total group sales in the first half, has a clear competitive advantage in digital content and online services within US education, which has enabled it to win business in a tough environment. As US education publishers come under pressure, the growth in online education provision should drive demand for Pearson's products. All in all, and considering the economic environment, Pearson is well-positioned – although there are clear economic risks. Hold says the Telegraph.

It was full steam ahead for Braemar Shipping Services yesterday. The group's half-year results showed revenues up by 18% to £68m, pushing pre-tax profits up by 3%. The the shipbroking division – which generates four-fifths of revenues – turn out a 31% profit increase, far outstripping volatile market improvements. Braemar's upward trajectory will flatten off. But with opportunities in Asia to counteract short-term uncertainties, it will not be quite yet. Buy says the Independent.

Braemar's interim dividend is raised from 8¾p to 9p. Braemar has been bought in the past as much for its dividend and, with almost £15m in the bank, the 4.8% forward yield looks safe enough, while the shares are on a little more than nine times’ this year’s earnings. Attractive at this level adds the Times.

The newly austere Government is not bad news for all public-sector suppliers. AIM-listed Lidco attributes a strong first-half and upbeat outlook to growing interest from NHS trusts in its heart monitoring equipment. Lidco has come through a sticky patch over the last 12 months. Its US distributor, Covidien, suffered disruption as it struggled to integrate acquisitions and Lidco itself was hit by falling sales. The company says its move into profit in the second quarter will be repeated in the second half and is sustainable. Lidco remains a buy says the Independent.

While Microgen's financial systems division continues to trade in line, analysts are paying increasingly attention to Microgen's Aptitude software, used for high-volume transaction processing. But the stock is also starting to look pricey and trades on a price-earnings ratio of 15.4, so a hold at best says the Independent.

Reckitt Benckiser's SSL purchase was expensive, but it has left it with plenty of firepower for further deals. On about 14.5 times revised 2011 earnings, a strong hold says the Times.

Concerns over raw material price increases have taken the froth out of McBride's share price performance – with the shares falling 19% this year. When the maker of supermarket own-label household goods yesterday issued an update ahead of its annual general meeting, raw materials were back on the agenda. Trading at 11.1 times 2011 earnings, the shares are fairly valued. The yield is 4% this year and the dividend is forecast to increase in 2011 from 6.8p to 6.83p despite earnings-per-share forecast to fall 14% to 15.81p. Hold says the Telegraph.

Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.

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