By Padraig O'Hannelly
| 20 September 2007
Market volatility can generate buying opportunities. These three
shares may look like bargains, but one needs to be aware of the risks:
ILX Group (LSE:
ILX)
Business education and training group ILX has seen its share price
trashed following a profit warning in April, related to delayed
contracts. Meanwhile, prices have recovered 30% from their recent lows,
but at 58p that still puts ILX on a
multiple of only eight times the revised earnings estimates for
this year.
Management have confirmed that they're confident of meeting market
forecasts, and have backed that opinion with several share purchases. A
further 24% growth is penciled in for next year, but there is always a
risk or further problems; if the economy slows, training budgets could
be slashed.
Premier Research Group (LSE:
PRG)
Shares in PRG, provider of research and laboratory services to the
pharmaceutical research industry, have fallen 60% since April, when its
founder sold his entire holding. Trading updates since then have all
been generally positive, if imprecisely worded. More interesting is the
fact that management are in discussions to buy the business, but of
course there is no guarantee that this will result in an offer.
Based on expected earnings for this year, PRG is on a
PE of 7.6, and with further growth expected next year, that looks
cheap at first glance. There are potential problems though: cash
generation could be better, the business is
geared at around 60%, and the profit calculations are complicated
by acquisitions.
Creston (LSE:
CRE)
Another falling knife worth considering is branding and marketing
group Creston, which has fallen 35% to 130p over the past year. While
the bulk of Creston's growth has been from acquisitions, the latest
trading update at the end of July reports like-for-like revenue growth
of 12% in their first quarter (April to June).
Acquisitions will continue to be key to the company's strategy,
however, with a venture into the US market on the cards. Clearly there
are risks with this approach, and if the economy suffers in the coming
months it is likely to affect businesses like this disproportionately.
Earnings estimates were recently downgraded, but Creston now trades on
a PE of only 7.8, which appears to be pricing in some further bad news.
Given the positive AGM statement, followed by the purchase of shares by
a director, I think these concerns may be overdone.
As
with any investment, you need to do your own research, and I'll be
doing more of that before deciding on any of these.
