Highlights from this week’s Investors Chronicle

Buy: St Ives (SIV)

St Ives’ shares trade on just nine times forward earnings and we reckon there’s more growth to come, as the balance tips even further towards strategic marketing., writes Emma Powell.

The restructuring of St Ives’ businesses model seems to be doing the trick for the international marketing services group. Strip out restructuring and acquisition-related costs and underlying full-year pre-tax profit grew 10 per cent to £33m.

Although St Ives’ market activation and legacy print businesses reported mixed trading conditions, the restructuring changes have been justified by the strong performance of the higher-margin strategic marketing business.

The segment now accounts for almost half of the group’s underlying operating profit, but that contribution is expected to increase significantly over time.

Strategic marketing, which provides data, digital and consulting services to brands ranging from Hewlett Packard to Chelsea football club, grew underlying operating profit by more than a quarter to £111m via its 10 agencies. The segment’s Incite agency began operating in Shanghai, part of the group’s strategy to grow its overseas strategic marketing capabilities.

Following the year-end, the group also acquired specialist retail property consultancy Fripp, Sandeman & Partners. And prospects for St Ives’ books business are looking up, following a deal with Penguin Random House that will secure 80 per cent of its revenue over the next three to six years.

Prior to these results, broker Peel Hunt expected adjusted earnings per share of 20.2p for the July 2016 year-end, up from 18.7p in 2015.

Sell: Experian (EXPN)

Factor in slowing organic revenue growth and a forward earnings multiple of 18, and we see no reason to alter our sell advice, writes Emma Powell.

A recent data breach will do Experian’s reputation no favours. Factor in slowing organic revenue growth and a forward earnings multiple of 18, and we see no reason to alter our sell advice

Credit checking specialist Experian has fallen victim to a data breach by hackers, who have acquired the credit details of up to 15m US T-Mobile customers. These include new applicants to the network requiring a credit checking service or device financing, between September 1 2013 and September 16 2015.

The data acquired includes names, dates of birth, addresses and social security numbers or an alternative form of ID such as a drivers’ licence, in addition to information used in T-Mobile’s credit assessment. In an open letter to customers, chief executive John Legere said: “Obviously I am incredibly angry about this data breach and we will institute a thorough review of our relationship with Experian”.

Experian North America chief executive Craig Boundy said the group is “taking steps to provide protection and support to those affected by this incident”.

Hold: Ted Baker (TED)

The shares are up two-thirds since last year and now trade on a five-year high and an eye-watering 32 times forward earnings, writes Harriet Russell.

When a stock trades consistently above 20 times forward earnings, the market holds it to very high standards. Fashion retailer Ted Baker illustrated this dynamic when the shares dropped 2.5 per cent on publication of what would have been a strong set of half-year results from almost any other operator. The market response might reflect some profit-taking — the shares are up nearly 60 per cent year on year — as pre-tax profit of £17.8m fell slightly short of analysts’ expectations.

There were other niggles, too. Gross margins dipped 0.9 points to 57.6 per cent following a shift to lower-margin licensing sales. That margin squeeze is expected to persist into the second half, although chief operating officer Lindsay Page said margins should rise again in the long run. And August trading was subdued, which Mr Page put down to “widespread reports of macroeconomic instability”. The weak euro, concerns over Asian growth and lower tourist traffic all played a part in curbing consumer confidence.

However, none of this does justice to several first-half achievements. On the retail side, Ted Baker expanded its property estate by 6.6 per cent during the period, but still managed to grow retail sales per square foot by 8.3 per cent to £418. E-commerce sales also did particularly well, jumping by nearly two-thirds to £22.9m following an improved website design, the launch of a Canadian website in November 2014 and a new Australian site in June 2015.

The wholesale division performed well in the UK and North America, with revenue 39 per cent above the same period last year. Licence income also rose 17 per cent, with both product and territorial licences performing equally well.

Mr Page said customer activity had picked up nicely in September, and current trading is back to where management expected it to be. Analysts at Peel Hunt expect pre-tax profit of £59.7m for the full financial year, giving earnings per share of 101p, compared with £49.5m and 83p for the year ended January 2015.

Five Best of British shares

What a year it’s been to be invested in the shares of leading UK-focused companies, writes Algy Hall.

My Best of British screen, which focuses on high-quality FTSE 350 companies that derive most of their sales from the UK, has produced a 42 per cent total return compared with a negative 2 per cent from the index. What’s more, the top five shares from the screen (classified as the shares with the highest three-month momentum) managed a staggering 52 per cent total return.

The strong run means the screen now boasts a cumulative total return of 129 per cent over the four years I have run it and 170 per cent for the top five shares. That compares with 36.5 per cent from the FTSE 350 over the same period.

The screen has produced fairly consistent outperformance. While it did mildly underperform in the year to October 2014, every other year has been decent. However, readers wowed by last year’s stellar numbers may want to bear in mind that lightning rarely strikes twice and reversion to mean is a very real factor at work in investing.

The full screening rules are:

● At least three-quarters of revenue from UK.

● Three-month share price momentum better than FTSE 350 (currently 8.3 per cent).

● Return on equity of more than 10 per cent.

● One-year beta of less than one.

● Forecast EPS growth in this and the next financial year.

● Better-than-average five-year compound annual growth rate (shorter periods used where a full five-year record is unavailable).

● Net debt of less than 2.5 times cash profit.

My top five best of British shares are:

JD Sports Fashion — Despite a string of broker forecast upgrades following a strong first-half trading update, sports retailer JD Sports (JD.) still managed to beat the market’s expectations when it recently published half-year results. The company is benefiting from several years of investment in the business to improve its stores, online sales, supply chain and product range. This is helping the sports fashion division deliver like-for-like growth of more than 10 per cent. Meanwhile, losses are being cut at the group’s outdoor division. The strong net cash position also puts JD in an excellent position for expansion, including building on its success at moving its business into Europe. Profitability has also been surging thanks to the beneficial impact of selling more goods from existing stores and through existing infrastructure.

Moneysupermarket.com — Comparison website Moneysupermarket.com (MONY) has seen its shares re-rate over recent years as the market has responded to management’s attempts to make the business more robust, and as investor focus has been drawn to the company’s strong cash-generation. Investment in diversifying revenue streams and promoting better customer retention and cross-selling appears to be paying off. And despite the added costs associated with making these improvements, the group’s margins have been rising. Strong cash generation and the company’s already sizeable cash pile mean there is further potential upside that shareholders could benefit from. This includes the potential for another special dividend payment, talk of international expansion through acquisitions - and broker Peel Hunt has even suggested the company may mimic the Zoopla/uSwitch tie-up by merging with Rightmove.

Telecom Plus — Against the backdrop of confusing utility pricing and the need for frequent switching by consumers who want to secure the best deals, Telecom Plus (TEP) is considered to have considerable growth potential. Its Utility Warehouse business aims to bundle together its customers’ utility bills and make them savings by getting the best deals. However, 2015 has not been a great year due to mild weather and falling wholesale energy prices, which big energy suppliers have been slow to pass on. Given the conditions, the group has reined in its marketing spend. Nevertheless, mid-single-digit customer growth is expected this year and lower marketing costs should boost profits. The company has also moved into larger offices, demonstrating its growth ambitions, and is benefiting from customers choosing to bundle more services together, which tends to make business less flighty. The shares also offer an attractive yield.

Marshalls — Landscape products specialist Marshalls (MSLH) is in a sweet spot at the moment, with demand for its products booming. The public and commercial building business has seen particularly strong growth, while demand for its retail business only seems to be being held back by the limited number of installers available to do the work rather than the level of end-market demand. Meanwhile, the group’s strong distribution capability is helping it win market share. The excellent trading conditions are helping Marshalls utilise more production capacity at the same time as increasing prices, all of which is leading to surging profitability. For example, an 11 per cent rise in first-half sales fed through to a 48 per cent rise in pre-tax profit. Net debt is also falling fast as the group keeps tight control on working capital and as pension funding requirements drop.

Ted Baker — Like its clothes, shares in fashion retailer Ted Baker (TED) are not cheap but they ooze quality. The company’s first-half results this week provided reassurance that things are continuing to move in the right direction. As usual, the weather concerns that have hit some peers don’t seem to have dented Ted Baker’s sales. In part this is due to the strength of the brand, but it is also thanks to the fact that more and more sales are being generated overseas. Indeed, while the company still qualifies as a Best of British share based on the proportion of revenue it generates in the UK, this is changing fast as it exploits international opportunities. The first half was encouraging from this perspective, with sales in Europe up 17 per cent and North American sales 19 per cent ahead. The group is also making good progress pushing online sales.