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Ice Picks Unlocked

By Stuart Watson
Volume 2, Issue 1 -- Published 25 February 2013
Welcome to our Ice Review issue. This month, we're giving you
our latest views on all 12 of the Ice recommendations we have
made to date.
Our favourite right now is RPC Group, which we're rerecommending this month.
We're also selecting Britvic and Stagecoach as additional
Best Buys Now for the Ice side of our scorecard. If you missed
our Update earlier this month, where we introduced the
concept of Best Buys Now, then you can find it here.
Ice refreshed
So what makes a good Ice share?
We think that investors with a more conservative approach
might find the Ice style most appealing. By focusing on
businesses that appear to enjoy consistent financial
performance and growing dividends, we're aiming to beat the
market via a mix of income and steadily rising share prices.
Unilever, we believe, is a great example of this. We doubt it
will ever top the performance tables over the course of a single
year, but its long-term record speaks for itself.
We consider Ice to be a lower risk investing strategy than Fire,
but company and industry specific risks mean diversification
remains important. So we consider a portfolio of 15 to 20
shares, across multiple industries, is probably most suitable, if
you fancy an Ice-focused portfolio.
Halfords gave us an early demonstration of the importance of
diversification, as its share price slid not long after we selected
it. But we still believed in the business, and held firm. The
share price has indeed bounced back strongly, and it's now
beating the market, thanks to a little help from Mr Wiggins and
Ms Pendleton.

With Nate Weisshaar, Charly Travers, James Early


and Nathan Parmelee.

Inside this Ice review issue:


Fire: Aggreko
Nate has been watching this company
for a long time, and he now reckons it's
time to buy.
Duelling Fools: Aggreko
James asks the questions regarding our
latest Fire recommendation.
Ice: RPC Group
We're re-recommending RPC, the
plastic packaging firm.
Ice: Best Buys Now
Britvic and Stagecoach join RPC Group
as Best Buys Now.
Ice: Buys
Our latest views on six further Buy
recommendations on the Ice side of the
scorecard.
Ice: Holds
Halfords and Micro Focus join Unilever
as Hold recommendations.

As we have seen with the likes of Britvic, which surged 60% following news of a proposed merger, Ice shares
can generate large, short-term gains on occasion. But with these Ice shares, we're generally expecting steadier
gains over time, and hopefully shallower declines during market corrections.

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Motley Fool Share Advisor

Icebergs or ice cubes?


When we launched Share Advisor this time last year we said "these qualities are most commonly found in
established firms, but the Ice approach will not focus exclusively on companies in the FTSE 100. We see ample
opportunity to invest in smaller companies, with strong niche positions in their industry and the ability to grow their
dividends for years to come."
And that has indeed proved to be the case so far. In fact, of the Ice shares we have selected to date, only two of
them, Unilever and Vodafone, currently command a spot in the FTSE 100. We would be surprised if that situation
remained the same over the long haul, but it will depend on what opportunities the market offers us.
We hope you enjoy this review issue. We start with a new Fire share, before moving into full-on Ice mode. As
ever, if you have any comments or questions, you'll find us lurking on the discussion boards.
Foolish regards,
Stuart Watson

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Fire: Aggreko
By Nate Weisshaar
With operations in more than 39 countries, Aggreko is the largest provider of temporary power and temperature
control solutions in the world, supplying power not only to events like the London Olympics, but also supporting
underdeveloped power grids in emerging markets.
Why buy?

Aggreko is the leader in its market, and generates impressive returns on capital. Its shares are currently
trading nearly 30% off last years highs.
The companys management team has been together for 10 years, demonstrating an ability to grow the
company rapidly and profitably, while keeping shareholders interests in mind.
Demand for electricity in emerging markets is expected to continue to outstrip new generating capacity,
creating a large long-term opportunity for further growth.

Key stats:

Ticker: AGK
Market: Main (FTSE 100)
HQ: Glasgow
Website: www.aggreko.com
Industry: Industrials
Position in industry: Leader
Recent price: 1,700p
Initial buy guidance: 1,850p
Market cap: 4.5 billion
Yield: 1.2%
Cash/debt: 23m/701m
Insider ownership: 4%
Biggest threat: Stalling emerging market growth.

Data as at 22 Feb 2013

The power outage during this years Super Bowl was a black eye for the USs aging electric grid, but it is far
overshadowed by last summers blackouts in India, which left 620 million people without power for two days. As
dramatic as that event was, it was just a concentrated version of the reality faced by over 1 billion people every
day.
The hard truth is the rapidly growing economies of the worlds emerging markets are outstripping their electrical
grids (when they have electrical grids that is). The lack of reliable access to electricity is a brake on growth, which
is why governments and utilities call on this months Fire recommendation, Aggreko, to help them bridge the gap
in their power networks.

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The company
Aggreko was founded in 1962 in the Netherlands, and established a presence in the UK just over a decade later.
It was acquired by the Salvesen Group in 1984, and when it was spit out as its own listed entity in 1997, it had a
presence in the US, Singapore, and the Middle East.
Today, Aggreko has almost 200 service centres in over 100 countries, temporary generators capable of providing
over 10% of peak electricity demand in the UK, and generates 1.5 billion in revenue and 255 million in net
income.
The Americas and Europe, Middle East, and Africa (EMEA) account for around 80% of the business, with the
remainder coming from the Asia Pacific region. Aggreko operates two closely related business divisions: its Local
operations and its International Power Projects (IPP).
The Local operations take care of headline-grabbing events like the Olympics, the World Cup, and the Super
Bowl, but also supply generators and temperature controls to oil & gas producers (the shale-based fracking
activity in the US has been a boon), manufacturers, builders, and the military.
Aggrekos IPP division focuses on larger contracts that last for a couple years. Utilities are this groups main
customers, and in fact account for 41% of Aggrekos total revenue. The company stepped in to assist Japans
electrical utilities after the tsunami and shutdown of that countrys nuclear reactors. But most of its utility business
is providing extra power in countries like Cote dIvoire or Mozambique, where the local power company just
doesnt have the capacity to meet rapidly growing demand.
As shown in the table below, Aggrekos business has been growing rapidly in recent years, thanks in large part to
its growing presence in emerging markets.
Year ended 31 December

2008

2009

2010

2011

TTM

Revenue (m)

947

1,024

1,230

1,396

1,493

Operating income (m)

205

262

315

343

373

Net income (m)

123

168

213

232

255

Operating cash flow (m)

222

352

389

403

385

28.5%

29.0%

32.4%

28.0%

26.2%

46

62

79

87

96

Return on capital employed


Earnings per share (p)

TTM = trailing twelve months. Net income for 2011 and TTM adjusted to remove the impact of a one-time tax benefit.

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As you can probably tell, a good portion of Aggrekos business is event driven sporting events, natural
disasters, war which can create a bit of lumpiness when contracts end and assets have to be redeployed.
This lumpiness is one reason the companys shares sold off dramatically in December. With Japans utilities
getting back on their feet, and the US pulling out of Afghanistan, two significant sources of business are expected
to come to an end this year, causing a 100 million drop in revenue.
Management shocked markets by saying that the current uneven growth in emerging markets means new
business may not be able to make up for that drop, and the numbers in 2013 could be below 2012s results. With
the shares trading on a P/E over 20, this was not what the markets wanted to hear, and the shares dropped 22%
in one day.
While Ive liked Aggrekos execution and opportunity for a while, the shares have long looked a bit pricey. I think
Decembers sell-off, in conjunction with what I see as favourable long-term market growth, are giving us an
opportunity.
Management
Despite some changes in the past few months that saw long-time regional directors Bill Caplan and Kash Pandya
pass the reins to a new, internally promoted generation, the companys management team has the tenure and
attitude I like to see.
CEO Rupert Soames has been with the company since 2003, and CFO Angus Cockburn joined in 2000. In
addition to being with the company for a good amount of time, I like the way Messrs. Soames and Cockburn view
the business.
Looking at the companys key performance indicators (KPIs) will give you an idea of what I mean. The five KPIs
are: safety, return on capital employed, diluted earnings per share, customer loyalty, and staff turnover. The focus
on staff and customers is refreshing, and is an approach that I think is often underappreciated.
Valuation and Key Metrics
I also think managements focus on return on capital employed is reassuring. Aggrekos business is very capital
intensive it takes a lot of expensive generators to make up for a shortage of power plants, especially when you
are doing it around the world. Because of this, the vast majority (sometimes all) of the companys operating cash
flow goes into building out Aggrekos fleet of generators.
In the past five years, Aggreko has spent nearly 1.5 billion on building up its 8,700MW of generating capacity
and network of service centres. This makes its fleet more than 6 times the size of its nearest competitor, APR
Energy, and allows it to service clients the world over.
However, it also means there is little free cash flow. Normally, I would be concerned about this, but Aggrekos
return on capital employed has consistently been over 25% since 2007. If they can invest my cash flow and get a
25% return, Im happy to let them do it.

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Aggreko is currently selling for about 11 times operating cash flow, which isnt blindingly cheap, but I think it is a
reasonable price for the dominant player in a growing market, especially when the company seems to be a
proven quality operator.
I think Aggrekos shares are worth between 22 and 24, so if we ask for a 20% margin of safety, I think the
shares are an attractive buy to around 18.50.
Risks
The capital intensive nature of Aggrekos business offers some protection from competition, but it also means that
if business slows, the company has a lot of idle assets and salesmen. If we were to see a dramatic and prolonged
slowdown in emerging markets, it could hurt profit and cash flow.
Additionally, if the stalled growth was prolonged enough, emerging market utilities might be able to close the
supply/demand gap, which could jeopardise Aggrekos future growth.
While Aggreko holds a dominant position in a highly fragmented market, APR Energy is investing heavily in its
generator fleet. It is possible APR could use price cuts to win market share, which could hurt Aggrekos cash flow.
A third threat is the recent rise in debt. Aggreko generates enough cash that Im not too worried about it right now,
but it could cause trouble if we were to see a slowdown, or if management had to choose between expanding its
fleet and paying down debt.
Summary
Cheaper is usually better, but Im willing to pay a higher price for what I think is a great company. With the recent
sell-off in Aggrekos shares, I believe we are getting just that sort of opportunity. The companys size and the
asset intensity of the industry should provide protection from competition, while the infrastructural shortcomings of
rapidly growing markets should provide ample room for further growth.

Duelling Fools: Aggreko


By Nate Weisshaar and James Early
James: How does Aggreko stack up against its competition?
Nate: Aggreko is the leader in this industry. It boasts a fleet capacity of almost 9,000MW, which is 6 times that of
its closest competitor, APR Energy.
APRs fleet is growing rapidly and is relatively younger, but Aggrekos heavy annual investment means its fleet of
gas-powered generators currently in high demand because of the relatively low cost of natural gas and stricter
emissions standards is nearly as large as APRs entire fleet.

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The major engine manufacturers Caterpillar, Honda, Cummins, etc. also sell portable generators, and their
dealers offer competition on a local level, but none appear able to offer the global network that Aggreko has.
James: If the bulk of Aggreko's turnover comes from supplying third-world countries with power, what happens
when they eventually build out real power infrastructure? Won't this mean a gradual loss of business, eventually?
Nate: Hopefully, yes. I look forward to a world where everyone has access to electricity from a permanent grid,
and Aggrekos equipment is only needed in emergencies. However, given the track record of governments
addressing infrastructure needs even in politically stable countries like India, the US, or the UK Im not
expecting to see fixed power plants catch up to demand in the next decade. That is plenty of time for Aggreko to
reward shareholders with solid returns.
James: More near term, you don't seem as concerned as the market is about Aggreko's recent slow-down. Why
is this?
Nate: In the near term I may not be, but I dont invest for the near term. I see the likelihood of a prolonged
slowdown in emerging markets especially those in Africa and Asia as very low, and 2014 is a major sporting
year (Olympics, World Cup, and Asian Games) that should provide a nice bump to business to help offset any
slowdown we see in 2013.
Importantly, Aggrekos management is reacting to the expected slowdown by reducing investment in new kit. This
is a nice lever they have to maintain strong cash flow, even if we dont see sales grow as rapidly next year as we
have in the past few.
James: Does Aggreko tend to sell these units outright, or just lease them?
Nate: While Aggreko does manufacture the majority of its generators at its new factory in Dumbarton, it is just in
the leasing business. In fact, they claim to use their generators for their entire life, as opposed to many others in
the industry that derive meaningful income from selling used equipment.
James: My wife's blow dryer sometimes dims our power. Does Aggreko make smaller units for home use?
Nate: Im sure theyve got something in their fleet that can handle that. You just need to find a parking spot for the
trailer.

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Motley Fool Share Advisor

Ice: RPC Group


By James Early
RPC Group is the European market leader in rigid plastic packaging.
Why buy:

Market leadership in an attractive segment of the packaging industry.


Still appears to be significantly undervalued.
Dividend has almost doubled over past three years.

Key stats:

Ticker: RPC
Market: Main (FTSE 250)
HQ: Rushden, Northants
Website: www.rpc-group.com
Industry: Packaging
Position in industry: Regional leader
Recent price: 440p
Initial buy guidance: 500p
Market cap: 730m
Yield: 3.3%
Cash/debt: 18m / 203m
Biggest threat: Worsening economy on the Continent.

Data as at 22 Feb 13

Hours before I wrote this, my wife and I took our four-year-old to a display of how Lego is made. I try to forget
about share investing from time to time, but as soon as I saw the vat of polymer granules being shaken out into
Lego block-sized piles, ready to be melted, I thought immediately of our beloved plastic packaging company, RPC
Group.
And while RPC, as a packaging business, doesn't make Lego, it didnt take much more looking around to notice
the many other things it does make: shampoo, lotion, and soap bottles, asthma inhalers, bottles for cleansers,
sauces, mayonnaise, olive oil, honey, paint, and almost anything else you can think of that comes in a plastic
container.
Yes, Fools, the world has been overrun, and not by alien invaders, but by plastic. Its this 'cant-get-away-from-it
nature' of its products that led your Share Advisor team to re-recommend RPC as the Ice share to accompany this
Ice Review issue. That and the potential for over 35% upside along with a fast-growing dividend.

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The company
RPC was recommended fairly recently in Share Advisor, but for a refresher, it was fused together a bit more than
20 years ago from the combination of five packaging companies. CEO Ron Marsh, who helmed one of these five
firms before the consolidation, essentially grew RPC into the European leader in rigid plastic packaging it is
today.
Mr. Marsh recently announced his forthcoming retirement this coming October. Hes put in a good long tenure,
and all CEOs need to retire sooner or later (or they should), so Im grateful for the ample lead time he gave us as
investors and his replacement, Pim Vervaat, who has been RPCs finance director since 2007.
As noted in the original recommendation, the plastic packaging industry overall is growing robustly from $610
billion in 2010 to $820 billion in 2016 by one estimate and rigid plastic is amongst its best niches.
To roughly double its returns on capital from a 2009 level of 10.7% to 20% by 2014, RPC is focusing on the most
profitable end of the rigid plastic spectrum, which is specialised high valued added containers that keep track of
medicine dosages, dispense coffee into single-serve coffee machines, or block oxygen from food products to
reduce their spoilage.
And while we all know that plastic is everywhere in developed countries, Im most moved by RPCs citation that
30%-50% of food may go to waste before going to market in developing countries, simply for lack of proper
packaging. So, its clear that emerging markets represent a massive packaging opportunity. That should bode
well, as does the fact that RPCs last dividend increase was 25%, which I feel indicates a company thats well in
tune with its shareholders.
Valuation
RPC has risen by over 10% from its original recommendation price, but I could see this company being worth 6
per share. I arrive at this sum by using a 10% growth expectation for the next few years of operating profits, along
with a somewhat high 11% equity discount rate. This leaves well over 30% upside remaining.
Risks
Quite simply, the main risk to RPC is the European economy. The company sells heavily in both the UK and
mainland Europe, so an easing of purchasing in either locale would ding turnover or margins. A modest positive is
that RPC is quite diversified amongst product lines, many of which house necessities that tend to be purchased
regardless of economic conditions.
The second major risk affecting RPC and Lego alike is rising polymer prices. RPC, to its credit, has decided
that its in the packaging business and not in the polymer-buying business, so it tends to pass these costs through
to its customers. And while this has helped RPC score superb earnings during times of high polymer prices, its
possible that were prices to rise too much, RPCs customers may offer more resistance.

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Summary
If Im honest, the making of Lego wasnt a particularly impressive display. Shaping plastic pellets into various
forms no doubt requires technology beyond my ability to appreciate, but relative to, say, aerospace or computing,
its not quite as far beyond.
Plastic is an inherently straightforward business, which is just how we like things from the Share Advisor Ice
perspective. Rigid plastic containers are remarkably prevalent already, and seem poised to proliferate further, as
the developing world adopts our mass-production, consumer-oriented tastes.
We reckon this provides a sound backdrop for investors owning a leading maker of rigid plastic containers, and
thats why we offer up RPC as our first Ice re-recommendation.

Ice: Best Buys Now


Earlier this month, we introduced the concept of 'Best Buys Now', to highlight the previous buy recommendations
we've made that we think are the most attractive right now.
We've already selected Burberry, Filtrona and Spirent from the Fire side of the scorecard. On the Ice side, we're
now picking RPC, Britvic and Stagecoach. You'll find all these shares are marked with a Now label on our online
scorecard. Going forward, we'll refresh the list of Best Buys Now once a month. Keep your eyes on our weekly
emails for news of any changes.

Britvic
By Nathan Parmelee
Current view: Best Buy Now
The past year has been a challenging one for Britvic. A safety issue with new caps for its top-selling Fruit Shoot
drink led to an expensive recall in July, and created the opportunity for Share Advisor to recommend the shares.
That was followed in September with news of a merger with A.G. Barr. The full merger details were announced a
couple of months later.
Everything was going far better than expected, with the merger helping Britvic shares realise gains I expected
would take two to three years to achieve. But we were dealt a setback earlier this month, when the OFT
recommended the merger to the Competition Commission. A deal with A.G. Barr is now much less certain, but I
continue to believe Britvic remains an attractive investment on a standalone basis, and I reckon it is attractively
priced, because of its opportunities to improve margins, and to continue the international expansion of the Fruit
Shoot brand.

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Britvic has also announced that Simon Litherland, the head of its Great Britain unit has been promoted to CEO,
replacing Paul Moody who was set to step aside after completing the merger. In my view, Litherland's past
experience leading Diageo's GB unit should have him well prepared for the job.
There is a chance the deal with A.G. Barr will be revived, but my thesis for Britvic has reverted back to the original
plan of international expansion of Fruit Shoot, improved distribution and efficiency at home, and a gradual
improvement in margins, leading to a reduction in debt, all of which should hopefully lead to a higher share price.
I'll be watching Simon Litherland's plans closely, but with the shares at a substantial discount to the likes of A.G.
Barr, Nichols, and other beverage producers, I'm comfortable rating Britvic shares a Best Buy Now.

Stagecoach
By James Early
Current view: Best Buy Now
Transport company Stagecoach gets a nod for a Best Buy Now quite simply because of its attractive valuation. If
that thinking sounds unadorned, perhaps it is but it's by design. In my view, Stagecoach is simply a classic Ice
share, and I feel it is trading at a price below its intrinsic value.
If youve been following Stagecoach, you may recall that the market was tickled when the company surprised on
the upside with a strong half-yearly showing like-for-like turnover rose 6%, and management bumped the
interim dividend by more than 8%. This drove the shares up by about 12% in a hurry.
I feel this is illustrative of the markets skeptical-until-proven attitude towards Stagecoach (which is simultaneously
the source of our profit opportunity). In other words, were aiming to exploit a time-honoured secret of investing.
Buy a company the market has only modest expectations of, and enjoy gains as the business delivers steady, if
somewhat unspectacular, results.
So thats our plan. But one bit of excitement thats kept Stagecoach in the news was the West Coast Rail
franchise, which it runs in tandem with Sir Richard Bransons Virgin Rail Group. Stagecoach, which had operated
the franchise for 16 years, protested that the recent bidding evaluation process was flawed, and that FirstGroups
initially victorious bid was unrealistic, and a recipe for trouble down the road (er, rail).
Patrick McLoughlin, the Transport Secretary, overturned the award, giving Stagecoach an extension, and
temporarily halting franchise bidding elsewhere. On the topic of botched franchise bid handling, Stagecoach CEOapparent Martin Griffiths recently spoke before Parliament, urging an overhaul of the Department for Transports
franchising methodologies, all in the name of restoring investor and public confidence. I think were all for
improving flawed processes, but there's a potential threat here, if an unlikely one, depending on what changes are
made to the franchise process.
Stagecoachs bus services are broadly thriving, and North America in particular remains a growth spot, with the
newfound prevalence of megabus a pleasant counterpoint to the long-held assumption that Americans would
rather be taken ill with the plague than travel by bus.

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In all, I don't see this as a sexy share, but rather a consummate Ice investment: a bit boring, but seemingly
undervalued. With the shares just below 3, and my valuation estimate north of 4, I feel comfortable anointing
Stagecoach a Best Buy Now.

Ice: Buys
Below we run through the remaining Buys on the Ice side of the scorecard (i.e. those we haven't classed as Best
Buys Now).

Debenhams
By Nathan Parmelee
Current view: Buy
I'm convinced that UK retailers are among the most hated investments in the world right now. That's because
every screen I run for new ideas returns a whole bunch of them. Debenhams finds itself lumped in with the rest,
though its performance has actually been quite good.
That makes Debenhams a stand out in my view, as most of the retailers I've researched seem cheap for good
reason. Some have declining sales, and others have shrinking margins, while some unfortunate retailers are
suffering from both. Fortunately, Debenhams isn't suffering from either of these problems. Its sales are growing,
its gross margin improved in the last year, and its operating margin would have as well, but the company is
investing to support the 40% sales growth it is experiencing online.
We've only had Debenhams on the scorecard for a month, and I believe it's going to take Mr. Market a little while
to recognise the quality of the results it's producing. I do believe, though, that this company should eventually get
rewarded with a higher multiple. In the meantime, it just needs to continue adding a couple of stores a year,
franchising internationally, and expanding its online store. If Debenhams executes on these three fronts, I reckon
everything should work out well.

Fidessa
By Charly Travers
Current view: Buy
Fidessa is one of the leading global software providers to financial institutions. Its sophisticated trading platforms
allow these firms to trade multiple asset classes, such as shares and bonds, on exchanges around the world. The
bright spot is that its products are tightly integrated into the operations of over 900 clients.

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What has been a challenge for Fidessa is the decline in equities trading in 2012. Trading volumes were down
20% last year, and this puts significant pressure on its customers, who depend upon fees generated from trading
activity. Fidessa noted that industry consolidation and client business failures cost them 7% of revenue. As a
result, Fidessa's revenue in 2012 was virtually flat compared to 2011, at 279m.
Looking out to 2013, Fidessa CEO Chris Aspinwall said the company is seeing signs of improvement in equity
trading volumes, and that the company has growth opportunities through selling new products, such as its
derivatives trading platform, However, he reckons the benefits from these improvement are not going to happen
quickly enough to produce overall growth in 2013. So, Fidessa's financial results this coming year are likely to be
the same as the last, although Aspinwall is hopeful that the company can then resume its historical growth
trajectory.
Even after the recent rise in Fidessa's share price, I view it as undervalued against my fair value estimate of
2,400p. I think long-term investors should be patient with Fidessa, to allow for the company's growth initiatives to
show up in its financial results.

Homeserve
By James Early
Current view: Buy
If youve been following our favourite home repair business, you likely know that the biggest issue remains the
forthcoming FSA fine, resulting from Homeserves (LSE: HSV) improper telesales in the UK. I don't like telesales
any more than you do, so Im fine with karma doing its job here, but this remains the big issue to watch until
whenever it comes to fruition. The market appears to be prepared to some degree, though.
In the meantime, Homeserve has cleaned up its act rather nicely, easing off the fruits of its most aggressive
labours in the UK, and has been doing well internationally overall. Buying 100% of Frances Domeo helped, and
customers have been growing apace in the US and Spain, since I made the initial recommendation. As we noted
in a recent update, Italy and Germany remain profit-challenged, but well give Homeserve a bit more time before
getting anxious.
In all, were happy with our return so far, but might need to cross our fingers regarding the FSA's decision. That
said, I still see more than 20% upside from here.

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Laird
By Nathan Parmelee
Current view: Buy
It's been a quiet three months since I selected Laird, but the shares have more or less matched the FTSE's recent
climb.
Since its recommendation, Laird has held an investor day, and issued a very brief trading update stating its
results are on track, and that the recommended total dividend for the year is 10p. So there really hasn't been
much reason for investors to get too excited or too gloomy.
I suspect that the company's biggest announcement of the past few months is one that appears to be relatively
small and unimportant on the surface. On 13 February, Laird announced it was paying $1 to acquire 100% of
Nextreme Thermal Solutions, a maker of thin films that can be used to cool electronics in tight spaces.
Don't let that $1 purchase price deceive you. The potential payout is up to 40% of revenues from 2014 to 2018,
with a cap on the payout of $60 million. It's reasonable to assume that any new products from the acquisition
might take time to ramp up their sales. But if the $60 million payout threshold is hit, it's likely the acquisition would
be generating more than $40 million a year in sales by 2018.
In today's terms, that's more than 5% of Laird's total revenue, so clearly this acquisition has the potential to be a
significant contributor to future results. That potential is a few years away. In the here and now, our next chance
to get a meaningful look at Laird's progress comes on 1 March, when its full-year results are due to be released.

Morgan Crucible
By James Early
Current view: Buy
We pounced on shares of materials company Morgan Crucible a few months ago, after its shares had been
drubbed following poor Chinese and European sales results. At the time, I saw 20% upside. As it happens, weve
enjoyed around 20% upside since the recommendation.
Morgans most recent results came in a bit under expectations. There was turnover and margin weakness at its
engineered materials division, which saw yearly revenues decline by 15% on a constant-currency basis, as the
Chinese scaled back on wind power and the Americans scaled back on body armour (the US is Morgans largest
single market, though just over 30% of total turnover).
Margins were down several percentage points as well, although its Superwool industrial insulation is selling
apace. But, in either a strategic, compensatory, or a distracting gesture, Morgan also bundled in news of a name

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Motley Fool Share Advisor

change to the less mellifluous Morgan Advanced Materials and a re-organisation to align the company along
geographies rather than business lines.
Will it work? Morgan cant control the global economy, which plays heavily into its results. At these prices, Im
inclined to happily hold, but recognising that it could be a year or more before we start to see meaningful capital
appreciation again. I'm keeping the shares as a Buy for the moment, though, and I'm happy to collect the
dividends while we wait for more action.

Vodafone
By Charly Travers
Current view: Buy
There are opposing forces acting upon Vodafone. In our favour lies the impressive performance of Verizon
Wireless in the US, in which Vodafone has a 45% ownership stake. In its other markets, Vodafone is benefitting
from the consumer transition from mobile phones to smart phones, like the iPhone, as well as the increasing
popularity of tablets. These devices result in higher monthly bills for consumers, and more revenue for Vodafone.
Smart phone penetration remains low in many of Vodafone's markets, and the company should benefit as
adoption rates increase.
In contrast, Vodafone is suffering from price competition and poor economic conditions in several key markets,
including Australia, Italy, and Spain. Accordingly, total revenue was down 2.6% in Vodafone's most recent
quarter.
Vodafone's dividend yield of 5.7% is quite attractive. But I am mildly concerned about the security of this payout,
and Vodafone's ability to keep increasing it, given the company's substantial cash requirements for acquiring
spectrum and investing in its infrastructure.
I do believe that Vodafone shares are undervalued, due to its Verizon Wireless stake, for which I estimate a pretax value of 60 billion. Achieving fair value for its Verizon Wireless holdings could be a challenge, given the huge
size of any deal. But in recent conference calls, both management teams are appearing open to making it
happen. I'll be watching this closely.

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Ice: Holds
We have listed Unilever as a Hold for many months now, and today we're moving Halfords and Micro Focus from
Buy to Hold as well.

Halfords
By James Early (TMFJamesEarly)
Current view: Hold
If theres any share that demonstrates the virtue of patience (or maybe just plain luck), its Halfords.
I recommended this share as my first in Share Advisor, believing its ongoing price slide had placed it into
attractive value territory. We then watched that slide continue for another 40%, before the shares finally bottomed
out. Fortunately, they then took inspiration, and rose 80% to give us the double-digit gain we enjoy on the
scorecard now.
Halfords, which sports a new chief executive, eased into its turnaround by first delivering smaller losses than
before (less bad is still good), and is now more focused on real growth. Bikes, while still not settled, saw a boost
from the Olympics and the Tour de France. Importantly, Halfords Wiggins-inspired premium cycles are selling
well, despite some doubters who felt the brand was limited to cost-conscious recreational cyclers.
Autocentres are another bright spot, even if growth is slowing slightly from its initially torrid pace following the
acquisition of this operation. Boosting like-for-like car maintenance turnover has been Halfords wefit service,
which offers installation of headlamp bulbs, wipers things most of us could proudly install given the right mood,
but which we clearly prefer not to, as evidence shows.
I believe Halfords shares are trading a bit richly now, so Im changing their rating to Hold. My long-term thoughts
centre around the viability of the overall concept. While Halfords has prime locations and name recognition, would
further separating the auto and outdoors businesses be wise? Nobody can know for certain, but if you have some
thoughts on this, please post it on the boards. We love hearing from our members!

Micro Focus
By James Early
Current view: Hold
Micro Focus has been quite the red-hot performer, rising nearly 50% to lead our Ice pack. Recall that this
business helps companies use programs written in legacy coding languages within their newer IT systems.

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That sounds odd, until you hear that 80% of business software is written in COBOL, a language invented in 1959!
Micro Focus, in other words, salvages decades of work these companies have put into their programs.
CEO Kevin Loosemore stepped in a few years back to effectively rescue this company by refocusing and getting
tough, and hes achieved splendid results, as the share price indicates.
If you must have something negative to make this success story feel a bit more realistic, note that the share price
dipped earlier this month when the company announced the completion of the acquisition of three small software
firms for 10 million. Micro Focus paid for this out of cash on hand, and the size itself would seem fully
manageable, so its possible that the market whiffs the fragrance of overeagerness emanating from a business
whose mainstay lines may be very slowly eroding.
Alternatively, these small deals may stroke memories of less successful acquisitions made in the past deals
which contributed to the 2010-era malaise that Mr. Loosemore is helping to pull the company out of. Im not
worried myself.
Currently, I believe Micro Focus is trading a bit over its rightful valuation, so Im moving its shares from Buy to
Hold. As more numbers come out this year, Ill review Micro Focus valuation and post an updated result as
warranted, but for now, I advise investors to Hold.

Unilever
By Nathan Parmelee
Current view: Hold Core
We were counting on emerging markets to help consumer goods giant Unilever (LSE: ULVR) overcome
inflationary challenges and deliver consistent growth in 2012. That's what we saw, plus a little bit more, because
as the year went on, sales growth accelerated and Unilever's shares followed suit.
Unilever's strongest units are its personal care and home care units. The company has invested in new products,
acquisitions, and improved marketing and distribution to drive growth in these categories, and the investments
have been a success. I expect the recent sale of the Skippy peanut butter brand for $700 million will be used to
further solidify the already strong positions the two units enjoy, and that should lead to continued growth.
All the good news comes with a little bit of bad. I reckon Unilever shares are no longer the great value they were
at the beginning of last year. Still, the shares are reasonably priced, and Unilever still has all of the same positive
traits working in its favour. That's more than enough reason to continue holding them, and if Unilever executes on
its plan to gradually improve margins, then we might be pleasantly surprised again a year from now.

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Motley Fool Share Advisor

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invested. It may be difficult to sell or realize the investment.

You should not speculate using money you cannot afford to lose.

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dealing or administrative charges.

We have taken all reasonable care to ensure that all statements of fact and opinion contained in
this publication are fair and accurate in all material aspects.

Investors should seek appropriate professional advice from their stockbroker or other adviser if
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