Shares digital

In the second part of Shares’ Full FTSE review the team looks at the mid-cap 250. Introducing the review, Tom Sieber considers the bigger picture of an index that had an even tougher 2007 than the FTSE 100, making it all the more important for mid-cap players to be clever and careful if they are to come out on top in 2008

Up until the middle of last year the trend for mid-caps to outperform, one that had held sway since the end of the last bear run in 2003, looked secure. In May the FTSE 250 index was up nearly 10%, outstripping both blue-chip stocks and small caps, albeit only slightly in the former’s case. That began to change as we entered the summer with the blue chips suddenly rising to the fore.

I don’t need to remind you of what happened next, suffice to say, from that point on the FTSE 250 nosedived. While it was initially followed at close quarters by its loftier cousin, the FTSE 100 recovered in the fourth quarter as investors scrambled to take defensive positions.

At year end, the FTSE 250 was down 4.65% while the FTSE 100 was up 3.8% – with the only consolation being that the small caps’ performance was even worse, down a miserable 12.43% overall.

Beyond the obvious impact of the cataclysmic events of early autumn, still haunting the markets, what is behind this turnaround?

First, it is important to register that an era of cheap money has come to an end and with it the slew of private equity takeovers that had helped power the performance of the FTSE 250, especially during 2006.

At that time, companies in the index were seen as being attractive to venture capitalists because they were of a manageable scale and in most cases were cash-generative. But when the option of loading up on debt disappeared, so did the private equity interest.

A second key factor, hinted at above, is that, as credit markets have tightened, there has been a general retreat from risk, and this favours the blue chips with their strong track records and, in general, healthy balance sheets.

The valuation gap between the big caps and the mid-caps, which had been a notable feature of the markets for some time, was also likely to close at some stage.

It is probably instructive to look at those demoted to the mid-cap index and those that have in turn graduated to the FTSE 100. Unsurprisingly, the most significant movement between the two occurred during the final quarterly review of 2007, the biggest upheaval in recent history.

The companies left to curse triple-witching Friday (21 December last year), as they began trading as mid-caps, were Northern Rock (NRK), Tate & Lyle (TATE), Daily Mail (DMGT), Mitchells & Butlers (MAB), Punch Taverns (PUB), DSG International (DSGI) and Barratt Developments (BDEV). Their replacements were Cairn Energy (CNE), Kelda Group (KEL), TUI Travel (TT.), FirstGroup (FGP), G4S (GFS), Admiral Group (ADM) and Thomas Cook Group (TCG).

It is no surprise to see that the majority of names being demoted are UK consumer-facing. It is also no surprise to see another oil company making the step up after Tullow Oil’s (TLW) promotion earlier in the year.

The oil price pushed very close to the $100 barrier in 2007, breaking through on the first day of trading in 2008. Additionally, Cairn has been boosted by bid talk and Tullow had a particularly successful year with the drill bit.

Their progress also helps illustrate a more significant truth: that, unlike the FTSE 250, the FTSE 100 is no great indicator of the state of the UK economy – too many of the firms that make up the latter list have a global focus.

Certain sectors are also disproportionately represented, with financials, oil and gas and mining making up more than half of the index.

Given that most observers see the economic outlook for these shores as relatively bleak in 2008, it is hard to see a rapid return to form for the FTSE 250 – which earlier this month fell through the 10,000 barrier for the first time in five years.

That doesn’t mean there aren’t gains to be made but it makes it even more important to be selective – the individual stock commentary that follows should help.

Among the sectors that could buck the trend are the oil producers, with last year’s bid for Burren Energy (BUR) from ENI prompting speculation of further swoops for mid-tier E&P firms.

In turn, the rising capital expenditure of such companies should continue to drive growth among the oil service stocks – if things continue as they are it might not be a surprise to see John Wood Group (WG.), for example, win a place in the FTSE 100.

Equally, it was no great shock to see JJB Sports (JJB) exit the mid-cap index last year, and other consumer-focused stocks such as Restaurant Group (RTN) and Rank Group (RNK) will be looking nervously over their shoulders.

COMPANY BY COMPANY GUIDE

Aerospace & Defence

by: Timon Day

Chemring (CHG) £20.31

Market value: £662m

PE: 13.1 EPS growth: 60.6%

Yield: 1.2% 3 mth rel str: 12.8%

Takeover potential: 3

It has been another bumper year for this world leading countermeasures producer. Even though Iraq will scale back this year and next, Afghanistan looks good for up to a decade until the US and UK decide to withdraw. The ordinance side is growing fast.

SHARES VIEW: Now BUY Last Year BUY

Cobham (COB) 202p

Market value: £2,296m

PE: 15.1 EPS growth: 7.2%

Yield: 2.3% 3 mth rel str: 7.8%

Takeover potential: 3

This broadly based avionics-to-antennas manufacturer has leading positions in many niche markets. Its main attribute is reliability not glamour as the shares have done little for two years. The downside is limited as is the upside but directors have been buying a few shares.

SHARES VIEW: Now HOLD Last Year HOLD

Meggitt (MGGT) 296p

Market value: £1,950m

PE: 11.8 EPS growth: -3.4%

Yield: 3% 3 mth rel str: -1.2%

Takeover potential: 2

The big bet for Meggitt is whether the $1.8 billion purchase of K&F Industrial Holdings in June will work as it has doubled the size of the company. The slump in the share price indicates City doubters but might simply be share indigestion. EPS should rise 17% this year.

SHARES VIEW: Now BUY Last Year BUY

Qinetiq (QQ.) 200p

Market value: £1,321m

PE: 14.7 EPS growth: 34.5%

Yield: 2.2% 3 mth rel str: 21%

Takeover potential: 3

Once the government sells its 18.9% stake Qinetiq becomes a takeover target. Despite the strong three month price performance the shares are almost unchanged from the float two years ago. A couple of directors have bought more shares recently suggesting this high-tech group has a bright future.

SHARES VIEW: Now BUY Last Year BUY

Ultra Electronics (ULE) £11.78

Market value: £800m

PE: 16.1 EPS growth: 10.1%

Yield: 2% 3 mth rel str: 9.4%

Takeover potential: 3

The perennial takeover prospect has clocked up yet another year of record profits and earnings and there is no sign of this ending any time soon which explains the above sector average rating. Most of the bolt-on acquisitions are successful with more planned to use up the surplus cash flow.

SHARES VIEW: Now BUY Last Year BUY

VT Group (VTG) 672p

Market value: £1,178m

PE: 16.9 EPS growth: 26.3%

Yield: 2.1% 3 mth rel str: 25.5%

Takeover potential: 2

The future looks bright for VT as it transforms itself into a support services group away from shipbuilding. The aircraft carrier order is expected to proceed at a slower pace under a jointly owned BAE Systems (BA.) and VT operation.

SHARES VIEW: Now HOLD Last Year BUY

Automobiles & Parts

by: Carlo Svaluto

GKN (GKN) 251.25p

Market value: £1,771m

PE: 7.88 EPS growth: 81.8%

Yield: 5.54% 3 mth rel str: 22.7%

Takeover potential: 1

Lower car sales in America and Europe this year will take a toll on GKN but the company has shifted towards emerging markets. Major aircraft engine design contract wins will also provide support to earnings.

SHARES VIEW: Now HOLD Last Year HOLD

Banks

by: Tom Sieber

Bradford & Bingley (BB.) 258p

Market value: £1,594m

PE: 7 EPS growth: -7.81%

Yield: 8.69% 3 mth rel str: -0.1%

Takeover potential: 4

Bradford & Bingley fell out of the blue-chip index in 2007 as it was hit by the funding concerns affecting other UK lenders. This will continue to be an issue although the company could be a takeover target this year.

SHARES VIEW: Now SELL Last year HOLD

Northern Rock (NRK) 92p

Market value: £376m

PE: 5.59 EPS growth: -72%

Yield: 30.1% 3 mth rel str: -53.8%

Takeover potential: 4

With the looming prospect of nationalisation it's difficult to know what to say about this stock except that if you haven't sold out, while its probably already too late, do so.

SHARES VIEW: Now SELL Last year HOLD

Beverages

by: John Marshall

Britvic (BVIC) 337p

Market value: £728m

PE: 14.2 EPS growth: 17.8%

Yield: 3.8% 3 mth rel str: 12.8%

Takeover potential: 3

The shares have recovered well from the problems it suffered soon after the 2005 float (at 230p) The company is seeking to reduce the relative importance of carbonated drinks. Although Pepsi would have to approve of any predator there has been some corporate interest.

SHARES VIEW: Now BUY Last Year HOLD

Chemicals

by: Rachel Robson

Croda International (CRDA) 543p

Market value: £739.5m

PE: 12.8 EPS growth: 18.2%

Yield: 2.7% 3 mth rel str: -11.5%

Takeover potential: 3

Has made significant cost savings and has sold its food services business as well as refrigeration lubricants business. Further disposals possible in 2008. Main risks are high energy and raw material costs and the weaker dollar, but should perform well.

SHARES VIEW: Now BUY Last Year HOLD

Victrex (VCT) 644p

Market value: £530m

PE: 14.2 EPS growth: 4.6%

Yield: 2.8% 3 mth rel str: 2.6%

Takeover potential: 2

The manufacturer of specialist thermoplastics continues to broaden product offering and its penetration into new industries. Demand is increasing from oil and gas companies, but weakness of US dollar remains a problem.

SHARES VIEW: Now HOLD Last Year HOLD

Construction & Materials

by: Carlo Svaluto

Balfour Beatty (BBY) 435.25p

Market value: £1,884m

PE: 11.07 EPS growth: 14.4%

Yield: 2.59% 3 mth rel str: 3.2%

Takeover potential: 1

Write-downs relating to the Metronet nightmare spoil an otherwise rosy picture. There is value in the shares, as the wide range of construction activities means Balfour Beatty is reasonably hedged from an economic downturn.

SHARES VIEW: Now BUY Last Year HOLD

Carillion (CLLN) 322p

Market value: £905m

PE: 9.9 EPS growth: 5.84%

Yield: 3.77% 3 mth rel str: -8%

Takeover potential: 2

The infrastructure services and facilities management group has snapped up Alfred McAlpine (MCA) in a £572 million deal. The tie-up should deliver £30 million in synergies by 2009, which puts the company in a strong position.

SHARES VIEW: Now BUY Last Year HOLD

Galliford Try (GFRD) 81.25p

Market value: £305.97m

PE: 4.59 EPS growth: 27.2%

Yield: 5.35% 3 mth rel str: -42.9%

Takeover potential: 1

Some clever acquisitions, the mixed model and exposure to the public sector make Galliford Try a resilient firm within the troubled sector. Final results should be substantially ahead of last year despite uncertainty about the housing market.

SHARES VIEW: Now BUY Last Year BUY

Keller (KLR) 541p

Market value: £359m

PE: 5.8 EPS growth: 79.1%

Yield: 3.77% 3 mth rel str: -45.4%

Takeover potential: 1

The ground engineering specialist, largely exposed to US, shrugged off concerns as it operates in cycle-proof segments of the construction industries. It has been awarded some prestigious contracts and the finals should not disappoint.

SHARES VIEW: Now BUY Last Year BUY

Kier (KIE) £13.22p

Market value: £487m

PE: 7.4 EPS growth: 32.3%

Yield: 4.4% 3 mth rel str: -25.3%

Takeover potential: 2

The group got off to a strong start of the year, with a £100 PFI school project awarded in Kent. Trading is in line with expectations, and unless something unexpected happens, it should deliver further growth this year.

SHARES VIEW: Now BUY Last Year HOLD

Marshalls (MSLH) 274p

Market value: £385m

PE: 12.5 EPS growth: -6.58%

Yield: 5.30% 3 mth rel str: -2.4%

Takeover potential: 2

The landscape products group will benefit from the shift from asphalt to paving and an exposure to large, public projects. The shares slumped last year leaving an attractive valuation and a programmed buyback is also increasing interest.

SHARES VIEW: Now BUY Last Year HOLD

Morgan Sindall (MGNS) £10.06

Market value: £430.6m

PE: 8.65 EPS growth: 14%

Yield: 3.53% 3 mth rel str: -33%

Takeover potential: 2

The shares are 40% down from year highs, even though the company, thanks to its wide range of activities, trades well in a tough market. The CEO and finance director have lifted stakes after the last trading update.

SHARES VIEW: Now BUY Last Year HOLD

Electronic & Electrical Equipment

by: Carlo Svaluto

Chloride (CHLD) 322p

Market value: £905m

PE: 16.3 EPS growth: 34.6%

Yield: 2.45% 3 mth rel str: -0.5%

Takeover potential: 3

The power protection solution expert posted strong interim numbers in November, and entered the second half with record orders. Demand from IT services and oil & gas industries is growing steadily, and there are no reasons why it should stop.

SHARES VIEW: Now BUY Last Year HLD

Drax (DRX) 541.5p

Market value: £1,837m

PE: 7.31 EPS growth: 1530%

Yield: 10.7% 3 mth rel str: 0.8%

Takeover potential: 3

The owner of the UK's largest coal-fired power plant is suffering amid sky-high coal prices. Stricter EU laws on carbon emissions will weigh on earnings. A special dividend and a refinancing plans have been scrapped.

SHARES VIEW: Now SELL Last Year HOLD

Halma (HLMA) 205.75p

Market value: £767.44m

PE: 14.1 EPS growth: 8.79%

Yield: 3.7% 3 mth rel str: 8.2%

Takeover potential: 2

The expert in safety equipment company is expanding through organic growth, and should post strong numbers at the 2008 finals. The shares are 16% down from year highs but this could be an outperforming share this year.

SHARES VIEW: Now BUY Last Year BUY

Invensys (ISYS) 192p

Market value: £1,480m

PE: 7.94 EPS growth: 459%

Yield: 0.22% 3 mth rel str: -33%

Takeover potential: 4

The industrial automation, transportation and control group recovered last year by slashing debt and improving profitability. Exposure to the US means that the shares slumped again, making it an attractive takeover target.

SHARES VIEW: Now HOLD Last Year BUY

Laird (LARD) 481.5p

Market value: £853.5m

PE: 11.6 EPS growth: 146%

Yield: 2.5% 3 mth rel str: -7.8%

Takeover potential: 4

The maker of customised electronical devices recently reassured that the strong organic sales momentum is being maintained. Risks arising from a general economic downturn are high but Laird's focus on high-margin products gives some hedge.

SHARES VIEW: Now BUY Last Year HOLD

Morgan Crucible (MGCR) 184.5p

Market value: £506.8m

PE: 8.13 EPS growth: 50.3%

Yield: 4% 3 mth rel str: 32.1%

Takeover potential: 3

Shares in the maker of ceramic and carbon components have tanked this year mainly because it admitted serious worries about the weak dollar. The fundamentals look good but the company is highly sensitive to an economic downturn.

SHARES VIEW: Now HOLD Last Year BUY

PV Crystalox Solar (PVCS) 713p

Market value: £8,612m

PE: 13.08 EPS growth: 220%

Yield: 0.69% 3 mth rel str: 9.1%

Takeover potential: n/a

The maker of silicon components for solar panels was one of the positive surprises in 2007. Largest renewable energy-related float, moved from the small caps to the 250 quickly and trading has been very strong.

SHARES VIEW: Now BUY Last Year n/a

Renishaw (RSW) 629p

Market value: £458m

PE: 14.4 EPS growth: -32.1%

Yield: 4.04% 3 mth rel str: 0.1%

Takeover potential: 3

The weak US dollar and issues with a Japanese customers hit the 2007 performance but in the current financial year Renishaw is recovering. The expert in metrology is also exposed to less cyclical industries like aerospace and healthcare.

SHARES VIEW: Now HOLD Last Year HOLD

Spectris (SXS) 713p

Market value: £8,612m

PE: 11 EPS growth: 23.3%

Yield: 3.07% 3 mth rel str: 13.8%

Takeover potential: 2

The expert in precision and control instruments shrugged off the generally gloomy sentiment, and said it will achieve mid-teens return on sales at the full year. The board has recently bought shares in big chunks.

SHARES VIEW: Now BUY Last Year HOLD

Fixed Line Telecommunications

by: Russ Mould

COLT Telecom (COLT) 158.5p

Market value: £1,078m

PE: 34.8 EPS growth: 25%

Yield: n/a 3 mth rel str: -1.1%

Takeover potential: 3

Data is growing nicely and represents more than 50% of sales but voice remains under pressure, particularly in Germany and the UK. Industry continues to consolidate but not cheap and any bid would need approval from majority stakeholder, fund manager Fidelity.

SHARES VIEW: Now HOLD Last Year HOLD

Food Producers

by: John Marshall

Dairy Crest (DCG) 529p

Market value: £700m

PE:9.4 EPS growth: 19.8%

Yield:4.6% 3 mth rel str: -7.2%

Takeover potential: 3

Company recently fined £9.4m for anti-competitive activity in 2002/3. Has some strong brands such as Cathedral City in addition to its basic dairy business. Facing higher ingredient prices. Well managed.

SHARES VIEW: Now BUY Last Year HOLD

Northern Foods (NFDS) 86p

Market value: £423m

PE: 11.3 EPS growth: 29.2%

Yield: 5.1% 3 mth rel str: -9.6%

Takeover potential: 3

Outlook is improving under new CEO. Could suffer from Marks & Spencer's (MKS) decision to reduce exposure to ready meals. Pizza business thriving but biscuits are under pressure. Started share buybacks.

SHARES VIEW: Now BUY Last Year SELL

Premier Foods (PFD) 164p

Market Value: £1,381m

PE: 10.2 EPS growth: -13.4%

Yield: 7.9% 3 mth rel str: -23.4%

Takeover potential: 2

The market reacted badly to the Christmas trading update which led to some brokers shaving their forecasts. Premier is a victim of higher ingredient prices. Is integrating two major acquisitions.

SHARES VIEW: Now HOLD Last Year SELL

Tate & Lyle (TATE) 450p

Market value: £2,088m

PE: 12.6 EPS growth: -21.9%

Yield: 5% 3 mth rel str: 1.6%

Takeover potential: 2

The group has recently been relegated from the FTSE. Demand for sucralose has been disappointing. Very disappointing interims. Hit by weakness of the dollar. Reform of EU Sugar Regime will eventually be helpful.

SHARES VIEW: Now BUY Last Year BUY

Food & Drug Retailers

by: John Marshall

Greggs (GRG) £44.62

Market value: £474m

PE: 15 EPS growth: 11.1%

Yield: 3.1% 3 mth rel str: -3.1%

Takeover potential: 2

The group's trading update was more positive than most with good underlying growth. Company believes scope exists for further physical expansion. Could benefit from weaker outlook for rents. Well managed.

SHARES VIEW: Now BUY Last Year HOLD

The writer holds shares in this company

Forestry & Paper

by: Dan Coatsworth

Mondi (MNDI) 409p

Market value: £1,501m

PE: 11.2 EPS growth: 17.5%

Yield: n/a 3 mth rel str: -1%

Takeover potential: 3

Rising profit but raw material costs a major issue. Half timber comes from Slovakia, Poland and Austria which have seen 20-25% price inflation. Shares have been weak but hold in hope of achieving 17.5% EPS growth forecast for 2008.

SHARES VIEW: Now HOLD Last Year n/a

Gas, Water & Multiutilities

by: Carlo Svaluto

Northumbrian Water (NWG) 358p

Market value: £1,856m

PE: 13.5 EPS growth: 22.4%

Yield: 3.68% 3 mth rel str: 15.6%

Takeover potential: 4

Higher prices of water and sewerage services offset the impact of last summer's flooding and the company posted strong interims at the end of November. Has defensive characteristics and there is the possibility that it will be snapped up.

SHARES VIEW: Now BUY Last Year BUY

Pennon (PNN) 662.5p

Market value: £2,310m

PE: 18.5 EPS growth: 31.7%

Yield: 3.16% 3 mth rel str: 16.7%

Takeover potential: 4

South west-based Pennon has grown well organically and through acquisitions, and the next regulator's price review shouldn't hurt. The solid business and chances of a bid saw the shares largely outperform this year. They should continue to do so.

SHARES VIEW: Now BUY Last Year HOLD

General Financial

by: Simon Keane

Aberdeen Asset Management (ADN) 129.3p

Market value: £853m

PE: 10 EPS growth: 25.3%

Yield: 5.2% 3 mth rel str: -22.1%

Takeover potential: 2

Aberdeen’s greater skew to less flighty institutional clients versus some of its peers (Schroders) means it’s better insulated from the expected retail investor exodus. Assets under management growth should beat forecasts.

SHARES VIEW: Now BUY Last Year BUY

Ashmore Group (ASHM) 254.8p

Market value: £1,795m

PE: 13 EPS growth: 26.2%

Yield: 4.6% 3 mth rel str: 4.2%

Takeover potential: 2

Its exposure to emerging markets, which are currently delivering stellar performance, gives the fund manager an edge over its peers, which are more exposed to the tougher equity markets in Europe and America.

SHARES VIEW: Now BUY Last Year BUY

BlueBay Asset Management (BBAY) 266p

Market value: £531m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -33.2%

Takeover potential: 2

Being a hedge fund it Is better equipped to deal with market volatility than some of the traditional asset managers. However, we’ve not had a update on assets under management since October and share price weakness is not encouraging.

SHARES VIEW: Now HOLD Last Year n/a

Cattles (CTT) 246.8p

Market value: £883m

PE: 7 EPS growth: 10.8%

Yield: 8.8% 3 mth rel str: -22.4%

Takeover potential: 2

Sub-prime lender Cattles is set to step into the void left by the high-street banks as they stop giving loans to those with impaired credit histories. This opportunity, a by-product of the credit crunch, should lead to strong loan book growth.

SHARES VIEW: Now BUY Last Year HOLD

Close Brothers (CBG) 948.5p

Market value: £1,410m

PE: 13 EPS growth: -11.6%

Yield: 4.4% 3 mth rel str: 40.3%

Takeover potential:4

Currently being stalked by rival Cenkos Securities (CNKS:AIM), whose bid offer it recently rejected. Other bidders also talked about. If broken up, Close’s various businesses, which range from market-making to corporate finance, will net investors a tidy profit.

SHARES VIEW: Now HOLD Last Year HOLD

Collins Stewart (CLST) 143.5p

Market value: £349m

PE: 7 EPS growth: 2.7%

Yield: 5% 3 mth rel str: -19%

Takeover potential: 3

Since demerging interdealer broker Tullet Prebon (TLPR) in 2006, the shares of the stockbroker have been on a one-way ticket down. Bid rumours continue. Now there’s talk of it making an offer for Close’s market-maker division Winterflood.

SHARES VIEW: Now HOLD Last Year HOLD

F&C Asset Management (FCAM) 189.5p

Market value: £940m

PE: 18 EPS growth: 13.8%

Yield: 3.7% 3 mth rel str: 4.5%

Takeover potential: 4

The fund manager has been haemorrhaging assets under management (albeit displaying a quarter-on-quarter rise in Q3 of 2007). Talk is now of Friends Provident (FP.) selling its 53% stake in FCAM as rival fund manager Dawnay, Day is building a stake.

SHARES VIEW: Now HOLD Last Year SELL

Hargreaves Lansdown (HL.) 148.3p

Market value: £738m

PE: 16 EPS growth: 15.1%

Yield: 4.2% 3 mth rel str: -22.5%

Takeover potential: 2

The share price of the financial adviser has been all over the place since floating in May and is currently in a dip. Has it been oversold? Perhaps, but market-wide fund sales to retail investors will slow further in coming months so it’s correct to be cautious.

SHARES VIEW: Now HOLD Last Year n/a

Helphire (HHR) 301.3p

Market value: £419m

PE: 9 EPS growth: 27%

Yield: 4.9% 3 mth rel str: -6.9%

Takeover potential: 2

Provides motorists with replacement cars but the market is getting more competitive. As more rivals enter the market, the insurance companies and automotive businesses – through which Helphire sources leads – want larger commissions, hitting its margins.

SHARES VIEW: Now HOLD Last Year BUY

Henderson Group (HGI) 107.3p

Market value: £764m

PE: 10 EPS growth: 6.6%

Yield: 5.3% 3 mth rel str: -34.4%

Takeover potential: 3

Market volatility is no good for traditional fund managers such as Henderson Global Investors, the company’s fund management. Management is focused on improving margins, but the bigger picture is shrinking assets under management.

SHARES VIEW: Now SELL Last Year SELL

IG Group (IGG) 323p

Market value: £1,265m

PE: 12 EPS growth: -8.2%

Yield: 4.6% 3 mth rel str: -5.7%

Takeover potential: 1

The shares have suffered heavy losses since last week’s results. The company is expanding rapidly into Europe. Reports say expansion costs have come in over budget. This is a short-term hiccup and investors should focus on the growth story.

SHARES VIEW: Now HOLD Last Year BUY

Intermediate Capital (ICP) £14.54

Market value: £472m

PE: 13 EPS growth: 12.3%

Yield: 2.7% 3 mth rel str: 2.6%

Takeover potential: 1

Intermediate provides debt financing for private equity deals at the junior or ‘venture capital’ end of the spectrum. It sees opportunities as the credit crisis prompts asset sales on the cheap and is looking to existing investors for new funding via a rights issue.

SHARES VIEW: Now BUY Last Year BUY

International Personal Finance (IPF) 184.8p

Market value: £472m

PE: 13 EPS growth: 12.3%

Yield: 2.7% 3 mth rel str: -2.9%

Takeover potential: 3

The recently demerged international parts of Provident Financial, International has had a rocky stock market debut, with the shares well down since float. The Mexico business is underperforming but management assures us impairment charges are falling.

SHARES VIEW: Now HOLD Last Year n/a

Investec (INVP) 407.3p

Market value: £1,724m

PE: 6 EPS growth: 14%

Yield: 7.4% 3 mth rel str: -8.8%

Takeover potential: 2

By far the majority of profits of the financial services group come from private client activities, which include private banking, stock broking and discretionary fund management. The recent market volatility will not be good for business

SHARES VIEW: Now SELL Last Year HOLD

New Star Asset Management (NSAM) 149p

Market value: £355m

PE: 5 EPS growth: 8.1%

Yield: 7.7% 3 mth rel str: -52.3%

Takeover potential: 2

You’d expect an asset manager with New Star in its name to produce some star fund managers. But several of its high fliers have lost their way and put in some terrible performances.

SHARES VIEW: Now SELL Last Year n/a

Provident Financial (PFG) 735.5p

Market value: £960m

PE: 11 EPS growth: 10.8%

Yield: 8.7% 3 mth rel str: -4.7%

Takeover potential: 2

The doorstep lender is set to benefit from the retreat of the high-street banks from the sub-prime sector. The company has tightened up its lending criteria but is still pulling in the customers.

SHARES VIEW: Now BUY Last Year SELL

Rathbone Brothers (RAT) £10.07

Market value: £436m

PE: 12 EPS growth: 9.3%

Yield: 4.5% 3 mth rel str: -12.3%

Takeover potential: 2

Conventional asset managers such as Rathbone will find it harder from now on to grow assets. Retail investors are warier and markets are unlikely to be up to much in 2008.

SHARES VIEW: Now SELL Last Year HOLD

Tullett Prebon (TLPR) 479.8p

Market value: £1,015m

PE: 14 EPS growth: 12%

Yield: 3% 3 mth rel str: 21.8%

Takeover potential: 2

The volatile markets that we’ve experienced in the past three months should be good for an inter-dealer broker such as Tullett. As its institutional clients trade more frequently, Tullett will be raking in the fees.

SHARES VIEW: Now BUY Last Year BUY

General Industrials

by: Dan Coatsworth

Cookson (CKSN) 590p

Market value: £1,254m

PE: 9.5 EPS growth: 16.3%

Yield: 2.6% 3 mth rel str: -24.8%

Takeover potential: 2

The best days are over for Cookson. The shares almost trebled from 2005-2007 but have recently slumped and are unlikely to recover quickly as two thirds of its markets are Europe and America where economic prospects look poor. EPS could fall later this year and next.

SHARES VIEW: Now SELL Last Year BUY

Severfield-Rowen (SFR) 405.3p

Market value: £360.2m

PE: 9.7 EPS growth: 31.8%

Yield: 4.5% 3 mth rel str: -20.7%

Takeover potential: 2

Its record order book of £405 million is expected to increase further this year through the addition of a number of large projects, setting the structural steel group up for a promising 2008. Integration of Fisher Engineering is also progressing well.

Shares says: Now BUY Last Year BUY

Smith (DS) (SMDS) 209p

Market value: £820m

PE: 9.4 EPS growth: 71%

Yield: 4.3% 3 mth rel str: 11.4%

Takeover potential: 1

Little to get excited about. The big jump in EPS is a one-off unlikely to be repeated in the next 20 years. Costs are under huge pressure and suddenly the outlook for price rises aren't so rosy for paper and packaging. The big prop is the dividend.

SHARES VIEW: Now HOLD Last Year HOLD

Tomkins (TOMK) 167p

Market value: £1,474m

PE: 9.6 EPS growth: -36.6%

Yield: 8.5% 3 mth rel str: -17.2%

Takeover potential: 1

Can the dividend be held? Is all the bad news in the price? Directors have been buying. With 67% of sales and profits in the US it is a tough time especially for car parts and building products manufacturers. In the last recession the shares fell to around 140p so buy at this price.

SHARES VIEW: Now BUY Last Year SELL

General Retailers

by: John Marshall

Brown (N) (BWNG) 242p

Market value: £656m

PE: 12.4 EPS growth: 23.4%

Yield: 3.7% 3 mth rel str: -5.5%

Takeover potential: 3

The group enjoyed strong Christmas sales. It has a strongly growing internet operation. Its niche fashion business – supplying the needs of the fuller figure - suffers from limited competition. Brokers enthusiastic.

SHARES VIEW: Now BUY Last Year BUY

Carpetright (CPR) 829p

Market value: £557m

PE: 13.1 EPS growth: 8.7%

Yield: 6.3% 3 mth rel str: -24.4%

Takeover potential: 4

Sentiment was badly affected by the withdrawal of Lord Harris' £12.50 takeover bid. However, this reflected funding difficulties with the banks. Any easing of the credit squeeze will probably see him return. Good yield. Share buybacks.

SHARES VIEW: Now BUY Last Year HOLD

Debenhams (DEB) 76.5p

Market value: £657m

PE: 7.1 EPS growth: 1.5%

Yield: 8.2% 3 mth rel str: -23.3%

Takeover potential: 3

Christmas trading was better than the bears had expected. However, demand will be constrained in 2008. Significant corporate interest - could merge with Baugur's House of Fraser. Divi probably secure.

SHARES VIEW: Now HOLD Last Year HOLD

Dignity (DTY) 714p

Market value: £452m

PE: 21.9 EPS growth: 22.6%

Yield: 1.4% 3 mth rel str: 1.1%

Takeover potential: 3

Recent entrant to FTSE 250.The company, which specialises in funerals and operates crematoria, has a reliable cashflow. Prospects are encouraging as there is scope for acquisitions. In medium term death rate will rise.

SHARES VIEW: Now HOLD Last Year HOLD

DSG International (DSGI) 72.3p

Market value: £1,281m

PE: 7.8 EPS growth: -8.3%

Yield: 7.8% 3 mth rel str: -45%

Takeover potential: 1

The group was recently relegated from the FTSE 100. Christmas trading was poor especially in the UK. Analysts expect the dividend to be cut dramatically. Hit by increased popularity of the internet.

SHARES VIEW: Now SELL Last Year HOLD

Findel (FDL) 533p

Market value: £453m

PE: 9.5 EPS growth: 3.2%

Yield: 4.1% 3 mth rel str: -13.4%

Takeover potential: 2

Recent Christmas trading update was very encouraging. The group’s increased emphasis upon the internet should allow sales to motor well. Educational supplies business is trading well. Brokers are positive.

SHARES VIEW: Now BUY Last Year BUY

The writer holds shares in this company

Galiform (GFRM) 72.8p

Market value: £461m

PE: 9.4 EPS growth: 1.2%

Yield: 1.2% 3 mth rel str: -35.5%

Takeover potential: 2

This is the quoted residue of the former MFI. It includes a jewel in Howdens, the joinery operation, which is being expanded. Could be hit by a decline in consumer confidence. Periodic takeover rumours have never led to a bid.

SHARES VIEW: Now SELL Last Year SELL

Game Group (GMG) 191p

Market value: £656m

PER: 13.3 EPS growth: 124%

Yield: 1.9% 3 mth rel str: 13.5%

Takeover potential: 3

Was one of the big winners from Christmas helped by soaring demand for Nintendo Wii. Outlook for this year is more pedestrian, although recent acquisition of Game Station should be earnings enhancing.

SHARES VIEW: Now HOLD Last Year HOLD

Halfords (HFD) 259p

Market value: £569m

PE: 9.1 EPS growth: 7.5%

Yield: 5.7% 33 mth rel str: -21.0%

Takeover potential: 3

Should be less affected by the consumer downturn than many retailers especially as largest retailer of bikes. Well managed group. The Atobacs 5.2% stake provides some speculative appeal.

SHARES VIEW: Now BUY Last Year BUY

The writer holds shares in this company

HMV (HMV) 106p

Market value: £429m

PE: 12.7 EPS Growth: -4.2%

Yield: 7% 3 mth rel str: -4.4%

Takeover potential: 3

The group is suffering from strong competition from the internet in both books (Waterstone's) and music. Longer term outlook discouraging although helped by store closure programme. Predators could return.

SHARES VIEW: Now SELL Last Year SELL

Inchcape (INCH) 338p

Market value: £1,560m

PE: 9.4 EPS growth: -0.3%

Yield: 4.8% 3 mth rel str: -20.8%

Takeover potential: 2

The company is the largest of the quoted motor dealers with a presence in several overseas markets such as Singapore and Australia. It is seeking to increase its exposure to emerging markets such as Russia. Well regarded.

SHARES VIEW: Now BUY Last Year BUY

Kesa Electricals (KESA) 195p

Market value: £1,030m

PE: 9.1 EPS growth: -1.2%

Yield: 7.4% 3 mth rel str: -28.3%

Takeover potential: 3

The group is in discussions about the sale of its French furniture business. Darty, its French electricals business, is facing more benign conditions than in UK. Yield is currently secure. Possible takeover victim.

SHARES VIEW: Now BUY Last Year SELL

Signet (SIG) 59.5p

Market value: £1,015m

PE: 9.3 EPS growth: -19%

Yield: 5.9% 3 mth rel str: -31.5%

Takeover potential: 2

Christmas trading update was disappointing with LFL sales down by 6%. Market in both the US and the UK is ‘challenging’. Profits forecast to fall. Attractive yield seems secure but immediate prospects unexciting.

SHARES VIEW: Now HOLD Last Year HOLD

Sports Direct (SPD) 98.25p

Market value: £578m

PE: 10.5 EPS growth: -44.8%

Yield: 4.3% 3 mth rel str: -25.2%

Takeover potential: 5

One of last year's worst floats, investors have lost two-thirds of their investment already. Share buybacks have increased Mike Ashley's stake to around 70%, making it pretty likely he'll take the firm private again sooner or later. Corporate governance issues.

SHARES VIEW: Now HOLD Last Year: n/a

Tradus (TRAD) £17.75

Market value: £828m

PE: 29.9 EPS growth: 82.1%

Yield: n/a 3 mth rel str: 63.4%

Takeover potential: 5

The group has agreed to an £18 bid from Napsers of South Africa. Its online auction service is making strong progress in Central Europe, especially Poland. Unlikely to be counter bid.

SHARES VIEW: Now HOLD Last Year BUY

The writer holds shares in this company

WH Smith (SMWH) 306p

Market value: £560m

PER: 10.3 EPS growth: 1.9%

Yield: 4.3% 3 mth rel str: -8.3%

Takeover potential: 3

The group will produce its Christmas trading update at the AGM next Thursday. Analysts believe that it will be accompanied by the announcement of a substantial share buyback. CEO Kate Swann is well regarded, and previous predators could return.

SHARES VIEW: Now BUY Last Year HOLD

Health Care Equipment & Services

by: Rachel Robson

Gyrus (GYG) 623.5p

Market value: £926.7m

PE: 25.9 EPS growth: 64.4%

Yield: n/a 3 mth rel str: 64.5%

Takeover potential: 5

Vulnerable to weak US dollar, but performing well. Weakest division is ENT which analysts say should be disposed of if Gyrus cannot start generating 'head and neck' revenue growth over next few months. Takeover by Olympus announced.

SHARES VIEW: Now HOLD Last Year HOLD

Southern Cross Healthcare (SCHE) 468.3p

Market value: £880.6m

PE: 16.8 EPS growth: 270%

Yield: n/a 3 mth rel str: -6.6%

Takeover potential: 3

Taking advantage of opportunities to consolidate the highly fragmented care home sector, having made several acquisitions, and further purchases are in the pipeline. Benefits from its sale and leaseback business model, and shares should perform well again this year.

SHARES VIEW: Now BUY Last Year HOLD

Household Goods

by: Carlo Svaluto

AGA Foodservice (AGA) 316p

Market Value: £364m

PE:9.8 EPS growth: 10.2%

Yield: 3.7% 3 mth rel str: -22.5%

Takeover potential: 3

Following the failure of its bid for Enodis (ENO) the company sold its own foodservice business. It will now concentrate upon its long established consumer brands, which are strong enough to attract a bid. Duke Street has 20% stake.

SHARES VIEW: Now BUY Last Year BUY

Barratt Developments (BDEV) 395.25p

Market value: £1,370m

PE: 3.47 EPS growth: 6.7%

Yield: 11.3% 3 mth rel str: -39.6%

Takeover potential: 2

The house builder, which bought Wilson Bowden for £2.2 billion in April 2007, maintains it can deliver decent full year margins. Orders are lower amid trough trading, and the shares fell 69% during the year.

SHARES VIEW: Now HOLD Last Year BUY

Bellway (BWY) 801p

Market value: £919m

PE: 6.04 EPS growth: 6.9%

Yield: 6.19% 3 mth rel str: -17.7%

Takeover potential: 3

The company has a long-term track record but amid tough trading conditions achieved sales are likely to be down at the final results. The shares are backed by 903p net asset value but sentiment is very weak.

SHARES VIEW: Now HOLD Last Year BUY

Berkeley Group (BKG) £10.53

Market value: £1,272m

PE: 9.13 EPS growth: 11.8%

Yield: n/a 3 mth rel str: -31.3%

Takeover potential: 1

The London and south east-focused house builder posted strong full year numbers last December. The strong model, regional focus and fat order book should attract interest, after the shares fell 44% last year.

SHARES VIEW: Now BUY Last Year HOLD

Bovis Homes (BVS) 591.5p

Market value: £714.31m

PE: 9.69 EPS growth: 15.7%

Yield: 6.99% 3 mth rel str: -4.6%

Takeover potential: 2

The latest update suggested that by focusing on margins Bovis should post decent full year numbers, but nasty surprises are not to be ruled out. A tricky year started with a weaker order book.

SHARES VIEW: Now SELL Last Year BUY

Headlam (HEAD) 401p

Market value: £334m

PE:10.4 EPS growth: 10.4%

Yield:5.8% 3 mth rel str: -23.2%

Takeover potential: 1

This specialist floor coverings group has a consistent record of profits and earnings growth. Has made a number of bolt-on infill acquisitions. Share buybacks will improve earnings. Little takeover appeal.

SHARES VIEW: Now HOLD Last Year HOLD

Redrow (RDW) 301.5p

Market value: £482m

PE: 6.92 EPS growth: -0.37%

Yield: 6.74% 3 mth rel str: -12.2%

Takeover potential: 3

After posting a gloomy trading update, the house builder will have to focus on cost control and on a sound land strategy. Exiting a joint venture will result in a £2 million post tax loss at the finals.

SHARES VIEW: Now SELL Last Year BUY

Industrial Engineering

by: Timon Day

Bodycote International (BOY) 175p

Market value: £561m

PE: 8.1 EPS growth: 21.2%

Yield: 4.7% 3 mth rel str: -34.5%

Takeover potential: 4

The shares have now almost halved since directors rejected the 347p offer from Sulzer. Maybe the Swiss company will return but at a lower price. Euro strength and dollar weakness is not helping but the company is starting to look great value even if profits don't rise much.

SHARES VIEW: Now BUY Last Year HOLD

Charter (CHTR) 683p

Market value: £1,139m

PE: 7.4 EPS growth: 25.9%

Yield: 3.5% 3 mth rel str: -39.8%

Takeover potential: 2

Demand for welding products and gas handling equipment will no doubt flatten in the EU and US but other markets should still lift profits like China and India. The cash pile is growing and a dividend looks likely.

SHARES VIEW: Now BUY Last Year BUY

Enodis (ENO) 149p

Market value: £546m

PE: 10.6 EPS growth: 19.4%

Yield: 3.6% 3 mth rel str: -13.8%

Takeover potential: 4

Sales of food equipment in America will be tougher but with blue chip customers like McDonalds there is plenty of growth and value in the business. And those takeover talks could resurface.

SHARES VIEW: Now HOLD Last Year BUY

FKI (FKI) 53p

Market value: £312m

PE: 8.5 EPS growth: 1%

Yield: 8.5% 3 mth rel str: -38.2%

Takeover potential: 2

FKI is up the creek without hardly a paddle. One profit warning follows another as debt balloons and the shares crash. Discussions on a 130p offer ceased last August but someone might be tempted as there are some good bits in a curate's egg.

SHARES VIEW: Now SELL Last Year SELL

Foseco (FOSE) 285p

Market value: £474m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: n/a

Takeover potential: n/a

Takeover bid from Cookson accepted at 295p a share and expected to be completed this month or next.

SHARES VIEW: Now n/a Last Year BUY

IMI (IMI) 333p

Market value: £1,072m

PE: 7.3 EPS growth: 11.4%

Yield: 6.4% 3 mth rel str: -33.2%

Takeover potential: 2

The fluid controls arm seems to be OK with a decent order book but the retail dispensing side seems less successful. A period of very slow profit growth looks likely.

SHARES VIEW: Now HOLD Last Year HOLD

Rotork (ROR) 916p

Market value: £792m

PE: 18.3 EPS growth: 23.5%

Yield: 2.7% 3 mth rel str: -9.1%

Takeover potential: 1

There is little reason to see why Rotork should have escaped the industrial engineering bloodbath of the last two months. Though earnings will be handsomely up for 2007 there will not be nearly such a big jump in 2008.

SHARES VIEW: Now SELL Last Year BUY

Spirax-Sarco Engineering (SPX) 870p

Market value: £662m

PE: 12.7 EPS growth: 8.6%

Yield: 3.6% 3 mth rel str: -8.4%

Takeover potential: 2

Operating margins look high by sector standards and might have peaked. With sales showing only slow growth a period of slow earnings growth is likely. Spirax does have the advantage of a quarter of sales in Asia.

SHARES VIEW: Now HOLD Last Year HOLD

Weir (WEIR) 726p

Market value: £1,518m

PE: 15.4 EPS growth: 22.2%

Yield: 2.4% 3 mth rel str: -8.4%

Takeover potential: 1

The big US purchase last year should prove beneficial but the timing was at the top of the market. A lot of sales are to oil & gas companies and the nuclear sector which bodes well for the future. But the rating looks a bit rich.

SHARES VIEW: Now HOLD Last Year BUY

Industrial Metals

by: Dan Coatsworth

Aricom (ORE) 75.8p

Market value: £848m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 47.7%

Takeover potential: 4

Aricom should generate positive cash flow by Q2 this year with initial production from its Kuranakh titanium deposit in Russia. Its larger iron ore project, K&S, starts first phase production in 2010. Should do extremely well.

SHARES VIEW: Now BUY Last Year BUY

Ferrexpo (FXPO) 219p

Market value: £1,392m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -5.1%

Takeover potential: 3

The Ukrainian company boasts a resource base of around 18 billion tonnes of iron ore and supplies pellets to the steel industry. The stock was among more the robust equities during the summer market downturn. Currently expanding production.

SHARES VIEW: Now HOLD Last Year n/a

International Ferro Metals (IFL) 106.25p

Market value: £535.5m

PE: 14.5 EPS growth: n/a

Yield: 2.3% 3 mth rel str: 22.3%

Takeover potential: 3

Profit margins have been hit by higher freight charges and a weak dollar. But it expects ferrochrome prices to remain high. Undertaking steps to increase production capacity and is expected to secure financing agreement with a Chinese bank soon.

SHARES VIEW: Now BUY Last Year HOLD

Talvivaara Mining (TALV) 309.5p

Market value: £531m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 11.3%

Takeover potential: 3

Nickel production should start in late 2008. It will use a technique called bioheapleaching where bacteria helps to extract the metal from ore. Zinc and copper will eventually be produced as by-products. Some analysts wary of the process, but share performance has been good.

SHARES VIEW: Now BUY Last Year n/a

Industrial Transportation

by: Rachel Robson

BBA Aviation (BBA) 176.3p

Market value: £726.9m

PE: 10.6 EPS growth: 14.3%

Yield: 4.3% 3 mth rel str: -10.7%

Takeover potential: 2

New acquisitions performing well and businesses trading robustly, although results will see some impact from the weak US dollar. Fuel volumes at its flight support division Signature have been largely unaffected by the recent high oil prices and economic uncertainty.

SHARES VIEW: Now BUY Last Year HOLD

Forth Ports (FPT) £20.49

Market value: £935.3m

PE: 41.6 EPS growth: 6.5%

Yield: 2.5% 3 mth rel str: 20.3%

Takeover potential: 5

Integration of acquired Nordic Group progressing well, as well as plans for long-term development of waterfront assets in Edinburgh. Babcock & Brown European Infrastructure Fund recently acquired significant stake in company. Stock looks expensive.

SHARES VIEW: Now HOLD Last Year HOLD

Northgate (NTG) 695.5p

Market value: £490.4m

PE: 7.3 EPS growth: 20.2%

Yield: 4.2% 3 mth rel str: -21.3%

Takeover potential: 2

The restructuring of its UK business in 2006 is proving beneficial and the group is enjoying a buoyant used vehicle market. Continues to expand its fleet in Spain. Hopes to move into new territory by end of 2008.

Shares says: Now HOLD Last Year HOLD

Wincanton (WIN) 334p

Market value: £403.4m

PE: 16.9 EPS growth: 25.2%

Yield: 4.3% 3 mth rel str: -14.5%

Takeover potential: 4

Promising recycling business, with its new WEEE (waste electrical and electronic equipment) plant now fully operational. Plenty of growth opportunities in France, Germany and Poland and 2008 should be a good year with further acquisitions.

SHARES VIEW: Now BUY Last Year BUY

Life Insurance

by: Carlo Svaluto

St James's Place (STJ) 248.75p

Market value: £1,094m

PE: 5.6 EPS growth: 220%

Yield: 2.11% 3 mth rel str: 9.1%

Takeover potential: 2

The wealth management and life insurance group, 60% owned by Halifax, saw good progress in the third quarter despite challenging conditions. Full year sales should be comfortably ahead of last year, as should be growth in the sales force.

SHARES VIEW: Now BUY Last Year BUY

Media

by: Susanna Twidale

Aegis (AGS) 99.25p

Market value: £1,200m

PE: 12.4 EPS growth: 26.4%

Yield: 2.24% 3 mth rel str: -10%

Takeover potential: 3

It expects to report growth ahead of the rest of the market for 2007, with organic revenues up 9.6%, while its size and geographical mix should help in a weaker climate. Vincent Bollore’s near-30% stake means takeover rumours are never far away but this has been rumbling on for years.

SHARES VIEW: Now HOLD Last Year BUY

Daily Mail & General Trust (DMGT) 456p

Market value: £1,634m

PE: 8.43 EPS growth: -25.1%

Yield 3.53% 3 mth rel str: -21.1%

Takeover potential: 2

With such a low rating the shares are looking cheap but the health of the advertising markets and competition in the London free—sheet arena are still concerns. The shares have almost halved since last year but it’s hard to see where a catalyst will come from.

SHARES VIEW: Now HOLD Last Year HOLD

Emap (EMA) 909p

Market value: £1,961m

PE: 13.8 EPS: growth: -19.4%

Yield: 3.7 % 3 mth rel str: 11.3%

Takeover potential: 5

Having already sold off its radio and consumer businesses, the last piece of the jigsaw – B2B – will go in April, when a deal with Apax, valuing it at £1 billion, is set to conclude. Providing shareholders approve at the upcoming EGM, the shares will also be delisted the same month.

SHARES VIEW: Now HOLD Last Year HOLD

Euromoney Institutional Investor (ERM) 398p

Market value: £410m

PE: 10.8 EPS growth: -23.3%

Yield 5.23% 3 mth rel str: -9.9%

Takeover potential: 2

Produced solid numbers for 2007, boosted by acquisitions, but it still remains vulnerable to a downturn in the financial services industry. It also has a relatively high gearing compared with peers, with net debt of £204.6 million last year, which could weigh on sentiment.

SHARES VIEW: Now SELL Last Year HOLD

Informa (INF) 393p

Market value: £1,667m

PE: 9.69 EPS growth: 247%

Yield: 4.71% 3 mth rel str: -18.2%

Takeover potential: 2

The shares plummeted last year despite an upbeat trading statement, with investors concerned about the effects of a downturn on its events and advertising revenues. Should meet 2007 targets comfortably and has better visibility in 2008 than some of its peers.

SHARES VIEW: Now HOLD Last Year BUY

ITE (ITE) 149p

Market value: £374m

PE: 14.3 EPS growth: 37%

Yield: 3.42% 3 mth rel str: -6.4%

Takeover potential: 2

Focused on fast-growing emerging markets and generates high visibility of sales on a 12-month booking cycle, which is priceless in the current climate. It has a solid cashflow and should benefit from companies looking for exposure to new markets when the stalwarts are under pressure.

SHARES VIEW: Now BUY Last Year HOLD

Johnston Press (JPR) 229p

Market value: £660m

PE: 6.9 EPS growth: -7.23%

Yield: 4.73% 3 mth rel str: -21.6%

Takeover potential: 2

The shares tanked last year and, with the company’s advertising markets still looking bleak, growth of just 2% to flat is predicted by some analysts for 2008. Property advertising accounts for around 20% of revenues, which is a major concern.

SHARES VIEW: Now SELL Last Year SELL

Moneysupermarket.com (MONY) 118p

Market value: £585m

PE: 17.5 EPS growth: n/a

Yield n/a 3 mth rel str: -30.6%

Takeover potential: 2

The shares have dropped since floating at 170p last year and it’s hard to see what will kick-start them back to life. It said it had not felt any effects from the credit crunch at interims in September but the market is clearly worried that there will be some fallout.

SHARES VIEW: Now HOLD Last Year n/a

Rightmove (RMV) 400p

Market value: £517m

PE: 17.5 EPS growth: 268%

Yield: 1.97% 3 mth rel str: -20.4%

Takeover potential: 2

The recent trading update shows pre-tax profits at the upper end of forecasts and has led analysts to maintain 2008 forecasts despite worries about the housing market. Retention rates remained high, at 92%, despite a price increase of more than 30% for some products.

SHARES VIEW: Now HOLD Last Year HOLD

Taylor Nelson Sofres (TNS) 181p

Market value: £745m

PE: 10.5 EPS growth: -13%

Yield: 3.32% 3 mth rel str: -5.5%

Takeover potential: 2

The company says its outlook is good and that revenue will be up 5% at finals due 3 March. It has seen strong growth in emerging markets and Russia, and its syndicated services are performing well, which should help to protect against a potential US recession.

SHARES VIEW: Now HOLD Last Year HOLD

Trinity Mirror (TNI) 308p

Market value: £903m

PE: 7.33 EPS growth: -18.4%

Yield: 7.16% 3 mth rel str: -16.6%

Takeover potential: 3

The return of £175 million to shareholders through a buyback, after the Racing Post sale has done little to prop up the shares over the past few months. Warnings given in December about a volatile 2008 don’t bode particularly well.

SHARES VIEW: Now SELL Last Year HOLD

United Business Media (UBM) 544p

Market value: £1,325m

PE: 9.89 EPS growth: 46.6%

Yield: 4.61% 3 mth rel str: -15.2%

Takeover potential: 3

Second-half trading is said to be in line with expectations but the weaker dollar will hit operating profit by around £3 million. Almost 50% of its revenues come from North America so it is particularly vulnerable to any slowdowns across the Pond.

SHARES VIEW: Now HOLD Last Year BUY

Mining

by: Dan Coatsworth

Aquarius Platinum (AQP) 591p

Market value: £1516.7m

PE: 14.7 EPS growth: 7.9%

Yield: 1.4% 3 mth rel str: 18.1%

Takeover potential: 3

It has suffered two fatalities in recent months and contract workers went on strike (and thousands subsequently sacked), disrupting production. But annual profit has grown as platinum prices strengthened. Has a hearty cash pile ready for deals.

SHARES VIEW: Now HOLD Last Year HOLD

Gem Diamonds (GEMD) 969p

Market value: £604.7m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -5.4%

Takeover potential: 3

Despite a highly volatile share price, the acquisitive diamond producer has been responsible for some of the biggest gemstone discoveries in the past year or so. It eased into profit during 2007 and has strong base to grow.

SHARES VIEW: Now HOLD Last Year n/a

Hochschild Mining (HOC) 353p

Market value: £1,085m

PE: 12.7 EPS growth: 89%

Yield: 1.3% 3 mth rel str: -1.3%

Takeover potential: 2

A surprise profit warning in early January took the shine off this silver producer. It has blamed higher depreciation charges and lower-quality ore at two mines reducing profit and margin. Long-term prospects still warrant holding on to the shares.

SHARES VIEW: Now HOLD Last Year HOLD

Randgold Resources (RRS) £20.86

Market value: £1,588m

PE: 41.42 EPS Growth: 42%

Yield: 0.3% 3 mth rel str: 43.7%

Takeover potential: 2

Highly leveraged to the soaring gold price, Randgold commands a premium rating for its solid assets. The record gold price helped it to offset higher costs, but while the precious metal continues to climb, this stock is your best bet for following the upward trend.

SHARES VIEW: Now BUY Last Year HOLD

UK Coal (UKC) 404p

Market value: £632m

PE: 8.1 EPS growth: 30%

Yield: 0.3% 3 mth rel str: -15.8%

Takeover potential: 5

Coal mining operations continue to tick over but the share price has been propped up by property developments. Bid rumours emerged last month on talk of an investment fund offer for its coal and power-generation business by an Austrian fund.

SHARES VIEW: Now BUY Last Year SELL

Mobile Telecommunications

by: Russ Mould

Inmarsat (ISAT) 495.75p

Market value: £2,268m

PE: 50.8 EPS growth: 7%

Yield: n/a 3 mth rel str: 4%

Takeover potential: 1

Geostationary satellite operator is enjoying booming revenues from data, maritime and airborne customers, and launch of new handheld phones a further boost. Excellent secular growth prospects but no bargain on a prospective PE of over 50x.

SHARES VIEW: Now HOLD Last Year HOLD

Nonlife Insurance

by: Carlo Svaluto

Amlin (AML) 265p

Market value: £1,266m

PE: 5.92 EPS growth: 50.4%

Yield: 5.6% 3 mth rel str: n/a

Takeover potential: 2

A focus on the right insurance classes should allow it to meet profit expectations at the year end. The shares look cheap but margins for insurance rates in 2008 will keep being under pressure.

SHARES VIEW: Now HOLD Last Year HOLD

Beazley (BEZ) 167p

Market value: £606.44m

PE: 6.65 EPS growth: 447%

Yield: 3.99% 3 mth rel str: 2.3%

Takeover potential: 2

The first six months of the year were positive for the insurer, with record premiums and profits, and US expansion. Releases of reserves and the current £30 million share buyback should impact EPS positively at the year end too.

SHARES VIEW: Now BUY Last Year BUY

Benfield (BEN) 275.5p

Market value: £596.4m

PE: 14.4 EPS growth: 14%

Yield: 4.4% 3 mth rel str: n/a%

Takeover potential: 2

Announced a share buyback and a new debt facility in the autumn but softness in the reinsurance market and the weak US dollar will hit profits badly. The shares have fallen about 20% in six months.

SHARES VIEW: Now SELL Last Year BUY

BRIT Insurance (BRE) 299p

Market value: £720.13m

PE: 5.87 EPS growth: 178%

Yield: 7.76% 3 mth rel str: -24.9%

Takeover potential: 2

Unless some serious disaster occurs, the insurer should post full year results in line with forecasts. The company admits the UK market is challenging but downward pressure on rates should start easing this year.

SHARES VIEW: Now HOLD Last Year HOLD

Catlin (CGL) 359.75p

Market value: £904.28m

PE: 4.53 EPS growth: 937%

Yield: 7.15% 3 mth rel str: n/a

Takeover potential: 1

The group performed well last year on an operational level but it will have to write down $75 million of sub-prime related securities. A poorer investment performance and lower premium rates will weigh on sentiment.

SHARES VIEW: Now HOLD Last Year BUY

Hiscox (HSX) 266.25p

Market value: £1,036.27m

PE: 7.46 EPS growth: 168%

Yield: 4.99% 3 mth rel str: 5.3%

Takeover potential: 1

The specialist insurer gave some reassuring guidance in December, flagging up growing premiums, a benign claims environment and minimal sub-prime exposure. The shares have been wobbly but could outperform during a downturn in premium rates.

SHARES VIEW: Now BUY Last Year HOLD

Jardine Lloyd Thompson (JLT) 321p

Market value: £682.2m

PE: 11.7 EPS growth: -4.54%

Yield: 6.55% 3 mth rel str: -3.1%

Takeover potential: 2

At the positive first half results the company warned about the nasty effect of the weak US dollar on earnings. Some analysts say the dividend is not covered too well and there are cheaper stocks in the sector.

SHARES VIEW: Now HOLD Last Year HOLD

Oil & Gas Producers

by: Tom Sieber

Burren Energy (BUR) £12.23

Market value: £1,726m

PE: 11 EPS growth: 4.54%

Yield: 1% 3 mth rel str: 10.8%

Takeover potential: n/a

ENI appears to have finally acquired development-focused Burren, having agreed a deal in principle at the end of last year. Despite rumours of a counter-bid from India it now seems likely that the Italian giant will complete its takeover.

SHARES VIEW: Now HOLD Last Year BUY

Dana Petroleum (DNX) £13.60

Market value: £1,170m

PE: 11.9 EPS growth: 37.9%

Yield: n/a 3 mth rel str: 22.5%

Takeover potential: 4

Dana is in solid financial condition and is heavily exposed to the high oil price. Management expects production to reach 45,000 boepd by the end of 2008 – a possible takeover target.

SHARES VIEW: Now BUY Last Year BUY

Imperial Energy (IEC) £17.55

Market value: £897m

PE: 48.5 EPS growth: 34.7%

Yield: n/a 3 mth rel str: 70.8%

Takeover potential: 3

The Russian-based company has announced its intention to spin off its drilling division in what could be a very lucrative move. An element of political risk remains but the stock is already at a heavy discount

SHARES VIEW: Now BUY Last Year n/a

JKX Oil & Gas (JKX) 409p

Market value: £638m

PE: 10.5 EPS growth: 34.1%

Yield: 0.57% 3 mth rel str: 18.3%

Takeover potential: 3

JKX continues to benefit from the rising price paid for the gas it produces in the Ukraine. Output should be boosted later this year as a field acquired in Russia comes on stream.

SHARES VIEW: Now BUY Last Year BUY

Premier Oil (PMO) £13.70

Market value: £1,125m

PE: 21 EPS growth: 79.1%

Yield: n/a 3 mth rel str: 30.8%

Takeover potential: 4

Premier’s drilling programme this year includes about 18 development wells and up to 12 exploration and appraisal wells. Production is up 8% for 2007 and UBS recently increased its price target from £15.50 to £16.50.

SHARES VIEW: Now BUY Last Year HOLD

SOCO International (SIA) £12.71

Market value: £1,580m

PE: 40.7 EPS growth: 137%

Yield: n/a 3 mth rel str: 9.5%

Takeover potential: 3

The company is focused on South East Asia and investors will be eagerly awaiting news from Block 16-1 in Vietnam, where the company began drilling the the 1.3 billion boe E prospect last year.

SHARES VIEW: Now HOLD Last Year BUY

Venture Production (VPC) 815p

Market value: £1,167m

PE: 10.4 EPS growth: 40.3%

Yield: 1.36% 3 mth rel str: 25.4%

Takeover potential: 3

North Sea-focused Venture has marked itself out as a consolidator in the sector, having snapped up Wham Energy in September last year. A recent disappointing trading update has dented sentiment, however.

SHARES VIEW: Now HOLD Last Year BUY

Oil equipment, Services & Distribution

by: Tom Sieber

Abbot Group (ABG) 382p

Market value: £887m

PE: 17.33 EPS growth: 39.1%

Yield: 1.5% 3 mth rel str: 15%

Takeover potential: n/a

Abbot agreed a deal with private equity firm First Reserve last year, having lagged many of its peers. Instead of waiting for the transaction to go through, take your money now and invest elsewhere in a buoyant sector

SHARES VIEW: Now SELL Last Year HOLD

Bunzl (BNZL) 640p

Market value: £2,090m

PE: 13.4 EPS growth: 8.9%

Yield: 3.1% 3 mth rel str: 3.6%

Takeover potential: 3

The distribution and outsourcing group has been battling with a slowdown in its US business and the effect of a weak dollar. Its UK and Irish business is much better, helping it stay on track. Mainland Europe and Australia are also ticking over well.

SHARES VIEW: Now HOLD Last Year HOLD

Expro International (EXR) £10.26

Market value: £1,133m

PE: 20 EPS growth: 17.5%

Yield: 1.26% 3 mth rel str: 6.3%

Takeover potential: 2

Oil field developer Expro continues to benefit from the increased capital expenditure of oil companies, and its interims saw underlying pre-tax profits up nearly 50%. However, this is already reflected in the price.

SHARES VIEW: Now HOLD Last Year HOLD

Hunting (HTG) 651p

Market value: £849m

PE: 14.7 EPS growth: 6.85%

Yield: 1.41% 3 mth rel str: 0.1%

Takeover potential: 2

Hunting's share price endured mixed fortunes last year, leaving the stock at a 20% discount to its UK peers. The company's involvement in Canadian tar sands should ensure growth and at present this looks like a buying opportunity.

SHARES VIEW: Now BUY Last Year BUY

Intertek (ITRK) 891p

Market value: £1,402m

PE: 16.1 EPS growth: 13.2%

Yield: 2.4% 3 mth rel str: 0.2%

Takeover potential: 3

The testing company has been doing well with its oil and chemicals business. Small acquisitions are helping to grow revenue streams and tighter legislation is creating opportunities to grow quality and safety services in home appliance exports.

SHARES VIEW: Now BUY Last Year BUY

John Wood Group (WG.) 407p

Market value: £2,131m

PE: 18 EPS growth: 25.2%

Yield: 0.95% 3 mth rel str: 6.4%

Takeover potential: 3

In a recent update, the company said that 2007 results would beat already buoyant market expectations, which were supported by strong growth in the gas turbine division. There have also been rumours of a bid from AMEC

SHARES VIEW: Now BUY Last Year HOLD

Petrofac (PFC) 550p

Market value: £1,900m

PE: 19.3 EPS growth: 12%

Yield: 1.56% 3 mth rel str: 23%

Takeover potential: 2

The stock has risen by a third since October, and although it has some new contracts in the pipeline it will be difficult to sustain that level of performance this year.

SHARES VIEW: Now HOLD Last Year BUY

Wellstream Holdings (WSM) £11.40

Market value: £1,135m

PE: 22.7 EPS growth: 73.5%

Yield: 0.67% 3 mth rel str: 48.5%

Takeover potential: 3

This has been on a spectacular run since floating in April last year, with the share price up more than 250%. Yet, according to Merrill Lynch, the stock still trades at a 15% discount to its UK peers.

SHARES VIEW: Now BUY Last Year n/a

Personal Goods

by: John Marshall

Burberry (BRBY) 485p

Market value: £2,098m

PE: 15.7 EPS growth: 7%

Yield: 2.5% 3 mth rel str: -21.6%

Takeover potential: 1

The group's interims were very encouraging with profits well up. Ongoing share buyback will help earnings. Well respected management team, the Burberry brand has wings being popular in many countries.

SHARES VIEW: Now BUY Last Year HOLD

The writer holds shares in this company

PZ Cussons (PZC) 219p

Market value: £938m

PE:18.7 EPS growth: 11.5%

Yield: 2% 3 mth rel str: 33.8%

Takeover potential: 1

The group's success has been based upon the Imperial Leather brand and the company's understanding of Africa, where it has traded for many years. Africa's growing prosperity should boost sentiment.

SHARES VIEW: Now BUY Last Year HOLD

SSL International (SSL) 555p

Market value: £1,057m

PE:28.1 EPS growth:-1.2%

Yield:1.3% 3 mth rel str: 21.7%

Takeover potential: 3

Both of the group's two main brands - Scholl and Durex – are trading well. The group has successfully extended both of these brands. The company has been subject to takeover interest historically. Demanding rating.

SHARES VIEW: Now HOLD Last Year SELL

Pharmaceuticals & Biotechnology

by: Susanna Twidale

Hikma Pharmaceuticals (HIK) 515p

Market value: £880m

PE: 22 EPS growth: 280%

Yield: 0.9% 3 mth rel str: 25.1%

Takeover potential: 2

Revenue growth of 40% is predicted for its 2007 finals and demand for its drugs in the Middle East and North African markets are soaring. Analysts believe it is on track to double sales by 2011 and it should stay strong even if there are worries over US markets.

SHARES VIEW: Now BUY Last Year HOLD

Real Estate

by: Rachel Robson

Big Yellow (BYG) 382.5p

Market value: £441m

PE: 29.8 EPS growth: -2.1 %

Yield: 2.5% 3 mth rel str: -20.8%

Takeover potential: 3

The UK self-storage market remains relatively immature, providing good growth opportunities in 2008. The group now has 45 stores open, with a further 27 in the pipeline. Occupancies and revenues expected to improve in Q1 following seasonally weaker period.

SHARES VIEW: Now BUY Last Year BUY

Brixton (BXTN) 282p

Market value: £763.3m

PE: 18.7 EPS growth: -26.8

Yield: 4.8 3 mth rel str: -21.9

Takeover potential: 2

Another Reit whose shares have been hit by market turmoil, but it has still successfully expanded its portfolio and enjoyed solid rental growth. A strong management should help it to grow further this year.

SHARES VIEW: Now HOLD Last Year HOLD

Capital & Regional (CAL) 363p

Market value: £257.9m

PE: 9.2 EPS growth: -48.2%

Yield: 8% 3 mth rel str: -47.9%

Takeover potential: 2

The shares took a battering in 2007 on the back of the credit crunch, and plunged more than 70%. However, tenant demand has remained strong, with good rental growth. Continues to strengthen its German portfolio despite increasing competition.

SHARES VIEW: Now HOLD Last Year SELL

Daejan Holdings (DJAN) £33.84

Market value: £551.4m

PE: 24 EPS growth: n/a

Yield: n/a 3 mth rel str: -5.1%

Takeover potential: 2

Refurbishment and redevelopment projects are progressing but there have been no significant property sales of late, and little, if anything, to get excited about. Shares fell throughout 2007.

Shares says: Now HOLD Last Year HOLD

Derwent London (DLN) £12.76

Market value: £1,285m

PE: 45.7 EPS growth: -92.8%

Yield: 1.8% 3 mth rel str: -22.5%

Takeover potential: 2

Formed last February following the merger of Derwent Valley and London Merchant Securities, it owns and manages a strong investment portfolio. Became a Reit in July 2007. Made several acquisitions despite difficult market. Likely to expand its pipeline further this year.

SHARES VIEW: Now BUY Last Year HOLD

Grainger (GRI) 330.5p

Market value: £423.1m

PE: 29.4 EPS growth: -75.5%

Yield: 2% 3 mth rel str: -23%

Takeover potential: 2

Shares have nose dived and stock looks fairly expensive. Although profits have grown and it has continued to build up its portfolio, 2008 is expected to be a challenging year.

SHARES VIEW: Now HOLD Last Year HOLD

Great Portland Estates (GPOR) 422p

Market value: £763.9m

PE: 22.4 EPS growth: 184%

Yield: 2.8% 3 mth rel str: -28%

Takeover potential: 3

Shares have not remained immune from credit crunch impact, but is enjoying robust occupational demand for office space and strong letting activity. Making solid progress with its development programme but challenging environment set to continue.

SHARES VIEW: Now HOLD Last Year HOLD

Mapeley (MAY) £13.01

Market value: £383m

PE: 9.5 EPS growth: 84.6%

Yield: 14.8% 3 mth rel str: -37.1%

Takeover potential: 2

Unsurprisingly, shares plunged in 2007. However, results have remained in line with expectations and dividend growth has been supported by strong cash flows. 94% of income comes from government and investment grade tenants. Strong pipeline of further acquisitions.

SHARES VIEW: Now HOLD Last Year BUY

Quintain Estates & Development (QED) 426.5p

Market value: £553.7m

PE: 31 EPS growth: -5.3%

Yield: 2.9% 3 mth rel str: -34.4%

Takeover potential: 4

Strong progress has been made with its big mixed-use development schemes, which include Wembley and Greenwich, and outlook remains encouraging. HBOS pulled out of takeover bid in August but the possibility of another offer should not be ruled out.

SHARES VIEW: Now BUY Last Year BUY

Savills (SVS) 243.5p

Market value: £320.9m

PE: 5.4 EPS growth: 45%

Yield: 7.4% 3 mth rel str: -33%

Takeover potential: 2

Benefits from diversified activities and international presence and Asian property markets are performing well. However, trading volumes in the UK and European investment markets have suffered, and much of outlook for 2008 depends on how quickly market confidence is restored.

SHARES VIEW: Now HOLD Last Year HOLD

Segro (SGRO) 432.5p

Market value: £1,886m

PE: 15.2 EPS growth: -74.7%

Yield: 5.3% 3 mth rel str: -10.9%

Takeover potential: 2

Previously Slough Estates, Segro has sold stake in power generation operation in Slough (Slough Heat & Power) and also disposed of its US life sciences real estate business. Well supported financially, with low gearing and a secure, long-term income profile.

SHARES VIEW: Now HOLD Last Year BUY

Shaftesbury (SHB) 485p

Market value: £655.8m

PE: 50.7 EPS growth: -95.4%

Yield: 2.3% 3 mth rel str: -10.1%

Takeover potential: 2

Has expanded its portfolio and also sold several non-core commercial and residential property interests. Enjoyed strong rental growth. Focuses on London's West End property market which should hold further growth potential for 2008.

SHARES VIEW: Now HOLD Last Year HOLD

St Modwen Properties (SMP) 368.5p

Market value: £445.1m

PE: n/a EPS growth: n/a

Yield: 3.1% 3 mth rel str: -22.9%

Takeover potential: 3

Profits ticked up nicely again at its interims, as did the dividend. Good progress has been made across wide range of projects. Completed re-financing programme, with £719m of bank facilities in place until 2011/2012, setting it in good stead.

SHARES VIEW: Now BUY Last Year BUY

UNITE (UTG) 297.8p

Market value: £367.7m

PE: 28.9 EPS growth: n/a

Yield: 0.8% 3 mth rel str: -16.3%

Takeover potential: 3

Student accommodation provider continues to enjoy strong market, with demand for accommodation on the up from both UK and foreign students. Continues to expand its pipeline and further growth is likely this year.

SHARES VIEW: Now HOLD Last Year HOLD

Workspace (WKP) 246p

Market value: £428.8m

PE: 38.2 EPS growth: -89.2%

Yield: 1.9% 3 mth rel str: -24.2%

Takeover potential: 3

Demand for space and occupancy levels remain strong in London and the Reit's JV with property development company Glebe should accelerate its regeneration initiatives. Further acquisitions should take place in 2008.

SHARES VIEW: Now HOLD Last Year HOLD

Software & Computer Services

by: Russ Mould

Autonomy Corporation (AU.) 997.5p

Market value: £2,125m

PE: 36.1 EPS growth: 50%

Yield: n/a 3 mth rel str: 12.6%

Takeover potential: 2

Shares are back to near their twelve month high after $70 million, multi-year deal from a bank showed demand for unstructured data management expert's archive retrieval skills could get a boost from the sub-prime crisis. Expensive but secular growth is worth paying for if economy slows.

SHARES VIEW: Now HOLD Last Year BUY

AVEVA (AVV) 977p

Market value: £659m

PE: 22.4 EPS growth: 13%

Yield: 0.6% 3 mth rel str: -6.7%

Takeover potential: 1

Engineering software expert is cashing in on booming demand in its core end markets of power generation, shipping and oil and gas and is in pole position to capitalise upon continued growth in the Asia Pacific region. Not cheap but it is worth paying for quality and a core software holding.

SHARES VIEW: Now HOLD Last Year HOLD

Dimension Data (DDT) 57p

Market value: £887m

PE: 23.8 EPS growth: 23%

Yield: 1.3% 3 mth rel str: 1.9%

Takeover potential: 2

Cisco's unconvincing November earnings guidance raised question marks about the IT solutions provider's prospects but only 7% of sales come from