Investment Column: Improving trends make Misys a buy

Our view: Buy

Share price: 335.1p (+9.1p)

Investors in Misys might have been excused a slight crisis of faith after the company suffered a shaky second quarter, with the shares retreating as key contracts were delayed.

But a quarter on, and the software firm's world view has improved. In the three months to the end of February, revenues increased by 7 per cent to £85m in constant currency terms. The big news was the order intake, which soared a third, helping to soothe the market's nerves.

The Treasury and Capital Markets business was strong with 11 per cent revenue growth and order intake was up by half. Global Services was even stronger with order intake up a stellar 86 per cent. Towards the end of the quarter, Misys also sealed a deal for the French group Sophis, which analysts said would have a significant impact on its numbers from the final quarter. The takeover is still being digested, but is on track with the back offices already integrated.

From its nadir in 2008, Misys shares have quadrupled and these results show continued improvement. Moreover, management said yesterday that the group would hit medium-term targets. The weak valuation – Jefferies puts the stock on 13 times forward earnings for 2012, leaving it at a 3 per cent discount to peers – only adds to the attraction, as Misys deserves to trade on a premium.

Prezzo

Our view: Buy

Share price: 67.75p (+3.5p)

By all accounts, the Great British Consumer is not feeling that great, what with a sluggish economy and the Chancellor's axe dangling over wide swathes of the public sector.

And yet, Prezzo appears to be doing rather well. Yesterday's results showed a 37 per cent rise in full-year pre-tax profits, beating market hopes and boosting the restaurant chain's shares. The increase was partly down to new sites, a trend that looks set to continue with the company anticipating opening "at least 20 new restaurants" over the course of this year.

Unusually for a consumer-facing business – though justifiably given its results – Prezzo also published a positive outlook statement, expressing confidence in the coming months after an encouraging start to the year.

The investment case for strong businesses such as this often turns on the valuation, and at first glance the share price, up more than 20 per cent since the beginning of March, appears to be reflecting the gains.

That said, the valuation is hardly a stretch. At 13.1 times forward earnings for this year, falling to 11.7 times on the estimates for next year, we think Prezzo remains affordable, not least because of the fact that it offers some of the strongest prospects in a sector that is facing myriad challenges.