The Investment Column: Johnson has a 'tough challenge' at Woolworths

Our view: Sell

Share price: 6p (-0.06p)

Whichever way you look at it and however hard you try to find something nice to say, Woolworths is in a shocking state. As a high street retailer, it will come as no surprise to investors that the group, which sells just about everything, is struggling: according to watchers at Panmure Gordon, "the next few months will be squeaky bottom time".

On just about every measure, the group's first-half performance was miserable. Pre-tax losses of nearly £100m were worse than last year's £63.8m deficit, sales were down 3 per cent and the dividend has been suspended. In the past year, the shares had already lost 70 per cent of their value before yesterday's figures.

Steve Johnson, the new chief executive, says that the numbers are "unacceptable" but that, just two weeks into the job, he is working on plans to turn the group around. In the short term, the company needs to "get back some retail basics", he says, adding that he is developing longer-term plans too.

It had better work. Analysts at Landsbanki have suggested that the company is drinking in the last- chance saloon: "The challenging consumer environment will mean that recovery will not be overnight. This could be the last roll of the dice for Woolworths in its current form." According to Numis, Mr Johnson has the "toughest of retail challenges" on his hands.

It is true to say that the shares are cheap: if Mr Johnson works his magic and the group recovers, investors who bought today would do very well, but it would take a very brave investor to punt now. Even Mr Johnson will not say that people should buy the shares today. The economic climate is getting worse and Woollies will carry on hurting for some time. Indeed, arguably the stock is being kept artificially high by the constant rumours that the company will be bought, with the smart money on Iceland founder Malcolm Walker, who has already had a bid of about £50m rejected.

Most shareholders got out of Woolworths a while ago. Those who are left could be asked to kindly turn off the lights when they leave if things do not improve soon. Sell.

Morson Group

Our view: Buy

Share price: 107.5p (+3p)

As the recruitment group Morson was publishing its interim results yesterday morning, the Office for National Statistics was at the same time telling us all that 32,500 people were made redundant in August, the biggest monthly rise since 1992. Punters could be forgiven for assuming that this is bad news for a group like Morson, which largely places technical staff. However, Paul Gilmour, its finance director, says that the company arranged work for 9,250 people in the past year, up 7.6 per cent on the year before.

Mr Gilmour claims, rightly, that the company is somewhat immune from the worst of the financial crisis: it does not place financial services people, preferring instead to concentrate its efforts on skilled engineers who typically have 18-month contracts, or longer.

The numbers look pretty good too. In the six months to 30 June, Morson's turnover was up 9.3 per cent to £212m. Net profits were down, but that is largely due to one-off costs associated with a move to a bigger office in Manchester.

In times of economic struggles, Morson is a solid investment. Much of the group's work comes from supplying staff to work on publicly funded projects: clients include Network Rail and BAE Systems.

The group has seen its value drop 54.5 per cent in the last year, and some investors will decide that the group's stock will fall regardless of what the company does. However, there are also compelling reasons to buy. Aside from the good numbers, and the fact that Morson has a good record of not losing contracts, watchers at Brewin Dolphin reckon the shares are cheap.

"Due to the current weakness in equity markets, we have rebased our target price to 190p, which equates to a price-to-earnings ratio of just less than 10 times to December 2009. With the stock yielding 5.6 per cent and our target price offering over 80 per cent upside, we believe that Morson should offer a compelling investment opportunity for both income funds and value investors." Buy.

Regenersis

Our view: Buy

Share price: 80p (+0.5p)

Good news for Regenersis, the group that repairs your laptop when it breaks down under warranty. The company, which describes itself as a provider of product lifecycle management services, posted a pre-tax profit of £3.9m against a loss of nearly £11m last year.

Regenersis's turnaround has been recognised by the market, with the stock up 8.9 per cent in the past 12 months. This is testament to the group's reorganisation programmes that have taken two years to complete and have undoubtedly put the group on a firmer financial footing.

Gary Stokes, the chief executive, reckons that, trading on a price-earnings ratio of about five times, the shares are cheap, a point supported by analysts at KBC who said: "We believe the stock is good value and a cash-generative play in a sector likely to consolidate."

If the group's projections of continued strong growth are accurate, Regenersis is a stock to back. Buy.