Hobson on Hornby, Ryanair and Royal Mail

THE WEEK: Morningstar columnist Rodney Hobson on the UK stock stories of the week - from Tate & Lyle to Aer Lingus. He reveals which equity investments look good

Rodney Hobson 29 May, 2015 | 2:16PM

Models maker Hornby (HRN) is going back to the future with a plan to merge the Sixties and Seventies with the 21st century. It is launching KitStarter, an internet platform that will allow consumers to choose and commit to buying Airfix kits from back catalogues. Once sufficient orders are garnered to justify production, the models will start rolling out.

This is certainly a new twist on the concept of crowd funding. While Airfix, bought by Hornby in 2006, was best known for aircraft models and teaching children how to stick their fingers to pieces of balsa wood, it also made historical figures and garden birds so there’s plenty to choose from.

KitStarter projects will be manufactured in a facility in the United Kingdom, which will mercifully avoid past problems that Hornby had with Chinese suppliers of toy trains.

The shares edged up 2p on the news, adding to gains made from a low of 60p in July to just above 100p. Chief executive Richard Ames is making a real go of it. I’m glad I topped up my holding at lower levels.

Bargaining with Irish Airlines

Common sense is slowly gaining control at Irish airline Aer Lingus (AERL), where Ryanair (RYA) has been reluctant to sell off the 29.8% stake it amassed in its thwarted takeover attempts. With the Irish Government holding 25% and implacably opposed to Ryanair, you might have expected everyone to leap at the takeover offer from IAG (IAG), which neatly cuts the knot.

The Irish Government has been reluctant to commit while it went through the motions of securing assurances on jobs and flights. It has finally succumbed to the inevitable. Ryanair continues to play the role of Grumpy but its bargaining power is limited by orders from the European regulator to reduce its stake to 5%. This is the only offer it is going to get.

The stock market has been a little speedier, with the Aer Lingus share price reflecting an assumption that the deal would succeed since the end of last year. That assumption is right. Let’s get on with it.

Sweat at Synergy

The proposed merger of New York listed Steris with UK health services provider Synergy Health (SYR) has suffered a nasty setback with the US Federal Trade Commission deciding to block the deal. The two companies say they will contest the FTC's action, but since they don’t yet know what the objections are it’s difficult to assess their chances of succeeding.

Meanwhile the deal goes on hold, possibly until the end of the year, possibly forever.

Synergy shares had already come off the boil after peaking at £23 and they dropped 120p on the setback before settling around £18.60. If this deal does not go through then Synergy could well slip back to around £14. Shareholders had better take a good hard look and decide whether to cash in a profit now or hope for better. It’s tough choice.

Don’t Wait for Tate

There have been good times and bad at sweeteners group Tate & Lyle (TATE) over the years so shareholders deserved the great run between 2009 and 2013, when the shares peaked at £8.90 and dividends were on the rise.

They have been lurching downwards since with three profit warnings over the past 12 months. Latest results showing lower sales and profits produced another such lurch and prospects for the current year have been reduced.

This downward momentum will take some stopping. It’s not too late to bite the bullet and get out.

Not-so-snail Mail

I apologize for understating the yield at Royal Mail (RMG) last week, having lazily copied the figure from a newspaper share price table rather than doing the simple and obvious calculation myself. At around £5.20, the shares offer a yield of just over 4% based on the past year’s dividend total of 21p.

That does make the shares quite attractive but I retain my worries about the long term. I’m still not tempted.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Hornby PLC40.00 GBX0.00
International Consolidated Airlines Group SA671.00 GBX5.11
Royal Mail PLC213.20 GBX-0.47
Ryanair Holdings PLC15.68 EUR-0.29
Tate & Lyle PLC798.00 GBX0.86

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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