Brokers' Views: Charles Stanley

Two recovery situations are highlighted by Charles Stanley this month, with analyst Ian Mitchell flagging up the sustained revitalisation under way at AIM-traded software and services group Sanderson, winning new customers in manufacturing and performing strongly in the buoyant multi-channel retail space.

Mitchell says Sanderson’s recent positive pre-close update, ahead of interims to March, showed that ‘momentum in the business continues, with revenue, profitability and order intake all ahead of the comparative period last year’.

On his September 2010 forecasts, pointing to increased pre-tax profits of £1.9 million (2009: £1.4 million) and earnings of 4.13p, Sanderson’s unloved but dividend-paying shares, now 26.5p, trade on a p/e of only 6.5 times.

Target price upgrade
Urging clients to buy, Mitchell has upgraded his price target to 32p ‘to reflect the sustained recovery’ and argues that ‘both the business and the share price have some way to go’. Significantly, his new price target still represents a 40 per cent discount to the wider sector.

On the Main Board, colleague Richard Hickinbotham advises investors to plug into growth prospects at restructured cables and power products play Volex, also in the midst of sustained recovery under ‘a new, experienced and ambitious management team’ and with ‘profits growth set to surprise’.

Initiating coverage with a buy stance at 115p and £2 target, Hickinbotham then saw the shares surge to 142.5p. Even on his March 2010 forecasts of a £10.1 million profit and improved earnings of 14.74p (2009: 10.9p), Volex shares still sell for less than ten times earnings and provide ‘significant scope for outperformance’.