LONDON Wednesday tips round-up: Babcock, Lookers, Intercontinental Hotels

Date: Wednesday 12 May 2010

Babcock’s scope to provide public services more cheaply is its big attraction. Although fears of government cutbacks remain to the fore, the company is not dependent on new capital expenditure.

Further, the tie-up with VT gives it an unparalled presence in technical training, an area where skills are short — especially in nuclear power — and where high unemployment should prompt government action. At 588p, or 11 times current-year earnings, buy says the Times.

Lookers deserves a premium rating to your average car retailer — rather than the ten times forward earnings at which the shares currently trade. On the one hand, there is the big “if” of a stalling UK economy or double-dip recession. On the other, Lookers should start paying dividends again this year, and that could be worth as much as 2p a share — a not too shoddy yield of more than 3%. Hold says the Times.

The world’s biggest hotel company provided further evidence of recovery yesterday, filing its first quarterly growth in revenue per available room (revpar) — the key industry metric — for 18 months. The 0.2% increase at InterContinental Hotels Group is modest, but, crucially, the improvement is on an upwards trend. Despite the strong share performance — up 24% this year — at £11.03, or 22 times 2010 earnings, this is no time to check out says the Times.

Regardless of what sort of government we get, and how long it lasts, one thing that is abundantly clear is that public spending will be slashed to lower the gargantuan budget deficit. This bodes ill for some companies but is positive for outsourcers such as Capita, which stands to gain from the impending efficiency drive. Capita is not particularly expensive but neither is it so cheap to offset the short-term political uncertainty that faces it and its business model. On balance, hold says the Independent.

Trading on 23 times this year's forecast earnings (falling to 19.6 times next year's), satellite operator Inmarsat is not cheap and has been fattened by bid rumours. Even so, it reamins a solid, long-term hold says the Independent.