Should you buy, sell or hold BP plc, Halma plc and Watchstone Group plc?

G A Chester looks at the investment case for BP plc (LON:BP), Halma plc (LON:HLMA) and Watchstone Group plc (LON:WTG).

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The price of safety

Health and safety technology group Halma (LSE: HLMA) released its annual results today. The shares are trading a little down, and at 934p the FTSE 250 firm is valued at £3.5bn.

Halma posted record numbers. Revenue of £808m was 11% up on last year, and ahead of a consensus forecast of £800m, while earnings advanced 10% to 34.26p, versus an analyst consensus of 33.8p. The board lifted the annual dividend by 7%, extending the company’s impressive payout history to 37 consecutive years of increases of 5% or more.

Chief executive Andrew Williams said: “The resilience and diversity of our markets, long-term growth drivers and business model give us confidence that we can continue to grow in today’s varied market conditions”.

Non-cyclical, with good cash generation and a robust balance sheet, Halma is highly attractive to investors. The company trades on 27.3 times trailing earnings, compared with 17.2 for the FTSE 250 as a whole, while the dividend yield of 1.4% is half that of the mid-cap market.

The valuation appears a little high, but with annual earnings set to continue advancing at around 10%, Halma is a solid hold in my opinion.

Special situation

There was also news today from AIM-listed Watchstone (LSE: WTG), the renamed and remaining rump of the notorious Quindell, which sold most of its assets to Australian firm Slater & Gordon over a year ago.

Watchstone’s new board has cleared up most of the past mess. Today’s news of a payment of $2.75m to settle litigation relating to an old acquisition concludes one of a few outstanding matters.

The shares are trading at 207p, valuing the company at around £95m. Watchstone has cash of about £85m, management is “confident” of receiving a further £50m from an escrow account (relating to the Slater & Gordon deal) and I reckon the viable businesses among its remaining operations can be valued at around £55m. So, by my calculations, the company is worth double its current market value.

I reckon the old Quindell directors will bear the brunt of a Serious Fraud Office investigation, while compensation claims from some ex-shareholders — currently amounting to less than £10m — may or may not come to anything. I believe the difference between my calculation of the company’s intrinsic value and the market value gives a sufficiently wide margin of safety to make the shares a buy.

Good long-term prospects

Fines and compensation claims were a reality for FTSE 100 giant  BP (LSE: BP) following the Gulf of Mexico oil spill in 2010. But as those issues began to be resolved, along came the great collapse in the price of oil from over $100 a barrel to less than $30 to give investors another major headache. Oil has rallied from the lows, reaching over $50 last week, but sentiment remains fragile, and traders jittery.

I take a long-term with the big oil companies, and ask myself: Is it better to buy their shares when oil is trading at over $100 and everybody is happy to buy, or is it better to buy when oil is $30, $40, $50 and many investors have been scared off?

I believe BP has good long-term prospects. A dividend yield north of 7% may not be the safest in the market, but I reckon the shares, depressed at 365p, are a good buy if you’re looking to invest for years and decades, rather than weeks and months.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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