Investors commonly assume that when there is a recession, the first part of the budget to get slashed is marketing. That might have been true once, but it is certainly not the case nowadays – countless studies have proved that companies wanting to ride out economic downturns should maintain their advertising and marketing spend.

That misconception can be the only reason behind the steep decline in the value of Creston. The shares were trading north of 200p a year ago, but by last Thursday’s close were languishing at under 90p. However, in light of Friday’s bullish first-half numbers, investors with a taste for risk could do a lot worse than pick some of the shares up at these depressed levels.

First-half numbers were encouraging: pre-tax profits doubled to £3.9m, despite most of the company’s business coming in the second half of the year, on the back of revenue jumping by nearly 25 per cent to £39.2m.

While some smaller companies may cut their advertising and marketing budgets over the next year, Creston’s blue-chip client list should give comfort to investors. New wins in the first half include Capital One, Freeview and Alton Towers, while existing clients including Alfa Romeo, Bayer and BT extended deals. Cross-selling between some of Creston’s 13 units resulted in wins from AstraZeneca, Canon and Ebay.

Although Creston is far from immune to a corporate spend downturn, its client base and lower reliance on single accounts (GM is its biggest client, generating 6.5 per cent of total group revenue) means that the shares deserve to trade on a premium to the sector. However, based on house broker Investec’s forecasts, Creston trades on just 5.2 times forecast 2009 earnings. Although it’s perhaps an unfair comparison, the sector heavyweight WPP trades on over 12 times 2009 forecasts. Creston has some quality brands under its umbrella, and the shares look to have been oversold, to put it mildly. Small Talk’s advice? Fill your boots.

Mixed signals for IVA investors

Contrasting newsflow from IVA companies last week: Debt Free Direct (DFD) confirmed that it has reached “accreditation ready” status following a review of its operations by TDX, the specialist audit group formed by creditor banks; meanwhile, Accuma revealed that takeover talks have been terminated. Clearly, despite what has been a hideous year for the IVA market, some companies are in better shape than others.

The review of fees and accounting practices by TDX is good news, even if it didn’t lead to a surge in DFD’s share price. Basically, it sets out the fee structure going forward to the satisfaction of all parties, and allows analysts to pencil in some forecasts that are based on more tangible parameters. As one analyst said, trying to put a value on these companies has been like trying to pin jelly to the ceiling.

For DFD, the ruling puts it at the head of its sector. Its market share is something like 28 per cent, and although the number of approvals has fallen with the uncertainty surrounding the industry, the number of people facing huge debt problems has not exactly shrunk. One major high-street bank is already referring its IVA applications to DFD.

Given the credit crunch and projected falls in house prices and the increasing difficulty in remortgaging property, the sad reality is that IVAs are likely to remain an attractive choice for some debtors. DFD can at least look to the future with more certainty than at any point in the last year, and the TDX ruling gives it and its shareholders a firm base from which to take the company forward.

The same cannot be said for Accuma. Its shares have been the worst performer in the sector over the past year, losing more than 90 per cent of their value since January. The end of offer talks hardly knocked the shares back – with losses like that, most investors have written the stock off anyway.

But if the company cannot find a buyer at these levels, even with the hope of the same accreditation from TDX, its future prospects cannot be much less bleak than the last year has been. For investors, there look to be fairly limited choices – but for our money, it is very clearwhich stocks are likelyto prosper.

Armor Designs ready to face flak

In light of the grim warning last week from the private security forcesprovider ArmorGroup, it is a brave move to bring a company with almost exactly the same name to the market. But should Armor Designs face some flak, at least it ought to be in the position to protect itself a little better.

The company, which is seeking to raise $16m (£7.8m) of new capital prior to listing on Aim, designs and manufactures composite armour products. After the float, the Arizona-based group is expectedto have a market capitalisation in the region of $260m.

Armor claims that its products differ from others on the market thanks to its patented “volumetrically controlled” manufacturing process, resulting in lighter, more comfortable protection than other products. Its products are not just aimed at military customers – its kits have also been tested on vehicles, and the company hopes to sell its armour to anyone wishing to customise a vehicle against attack. Perhaps the next England manager should be interested.

Source

Since the end of the Cold War, most of the world’s militaries have downsized. But in recent years, a few countries have been bulking up. In this week’s List, FP takes a look at the countries that are going large while everyone else is slimming down.

GUANG NIU/Getty Images

People’s Republic of China

Annual military budget: $103.9 billion (2005 estimate)

What they’re spending on: Weapons and military technology. Between 2002 and 2006, China purchased over $14.6 billion in arms. Between 2001 and 2005, China increased its annual military budget by nearly 126 percent. In addition to buying a few destroyers and submarines from Russia, China has also been developing its own nuclear-powered submarines that can fire off nuclear ballistic missiles. At its current rate of military expansion, China could have the world’s largest navy by 2020. Earlier this year, the Chinese also performed an unannounced test of a new antisatellite missile that drew fierce criticism from the United States and the international community.

What to watch: Boots on the ground. The People’s Liberation Army (PLA), with 2.25 million active-duty members, is the largest army in the world. But as large as its active-duty forces are, the Chinese military has decreased in size in the past two decades by more than 1.6 million soldiers. The reduction has allowed the Chinese military to use its increased budget to focus on training, leaving the force smaller and more professional.

Why it matters: The Taiwan Strait. China is determined to use its new wealth to modernize its armed forces, and a possible battle with the United States over Taiwan is the main motivating factor.

JOE RAEDLE/Getty Images

United States of America

Annual military budget: $481.4 billion (FY 2008 estimate)

What they’re spending on: Wars in Iraq and Afghanistan, which have cost U.S. taxpayers about $610 billion since Sept. 11, 2001. Then there are global antiterrorism measures, missile shields, personnel expenditures, and advanced defense technologies such as the next-generation aircraft carrier and unmanned aerial vehicles. The result: U.S. defense spending increased 54 percent this year over 2001—excluding the costs of the wars in Iraq and Afghanistan.

What to watch: Emergency spending and plans to grow the Army. Since the war on terror began, emergency supplemental packages have been tacked on to normal defense spending, putting vast expenses beyond normal congressional review. Just this year, President George W. Bush requested nearly $200 billion extra for Iraq and Afghanistan through next year—on top of the normal defense budget of $481.4 billion. There are also plans in the works for increasing the size of the U.S. Army by 74,000 soldiers by 2010, a project estimated to require an additional $2.6 billion per year.

Why it matters: Overextension. Iraq and Afghanistan are straining the U.S. military’s global operations. Increased funding and more troops is the only way the United States can maintain its forces in the “global war on terrorism” while still preparing conventional defenses against potential future adversaries.

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By Abid Aslam

WASHINGTON - China has agreed to scrap some trade subsidies, handing US officials a rare chance to claim success in international affairs. But while industry reaction has been upbeat, workers remain unimpressed as the impact remains to be seen.

Beijing said it had signed a memorandum of understanding rescinding a raft of tax breaks and subsidies that Washington had challenged this year as unfair and in violation of World Trade

Organization (WTO) rules. The concessions come in the run-up to high-level trade talks scheduled for this month and aimed at reducing Sino-US economic tensions.

A similar deal was reached with Mexico, which had joined the US complaint at the WTO, China’s mission to the Geneva-based institution announced.

Beijing thus headed off a formal WTO ruling under which it might have been found guilty of stacking the deck against US and Mexican competitors with measures that encouraged Chinese firms to export more than they otherwise would and rewarded them for using domestic, rather than imported, goods.

The top US trade envoy quickly claimed the laurels. “This outcome represents a victory for US manufacturers, producers and their workers,” Trade representative Susan Schwab said. The offending Chinese tax incentives and subsidies would be abolished by January 1, 2008, she said.

Industry quickly chimed in. “The settlement of this case is great news,” the National Association of Manufacturers, the largest US industrial exporters’ lobby, said in a statement. “China is to be commended for recognizing that these subsidies were illegal and for acting responsibly to eliminate them without going through prolonged litigation. We hope this is a harbinger of things to come,” it added.

The AFL-CIO, a federation of some 54 unions claiming a combined membership of some 10 million US and Canadian workers, demanded stronger action to reduce the US trade deficit with China.

While John Sweeney, the AFL-CIO president, called the Chinese decision “an important achievement” he added, “we hope that USTR [United States Trade Representative] and the Bush administration will show equal diligence in addressing worker rights violations, import safety and currency manipulation, all of which contribute to the enormously lopsided trade imbalance between the United States and China.

China ran a record trade surplus of US$187.6 billion with the United States in the first nine months of this year and seems set to surpass last year’s surplus of $232.5 billion. Workers and politicians have been baying for an end to the hemorrhage.

Democrats in Congress are advancing measures that would make it easier to impose tariffs on imports and thus protect US firms against China’s subsidies and weak currency.

Schwab said the administration of President George W Bush remained opposed to such punitive measures. The administration succeeded in bringing Beijing around because it shunned a punitive approach in favor of negotiation, eventually buttressed with litigation at the WTO - an appropriate route since both countries are members.

“The agreement demonstrates the two great trading nations can work together to settle disputes to their mutual benefit,” she said. Sweeney, however, said the US complaint and its resolution were too long in coming. “These subsidies should have been eliminated when China joined the WTO six years ago,” he said.

Just how much US exporters and their workers stand to benefit from Thursday’s deal remains to be seen. Officials and analysts alike have said the impact will be more than symbolic because the subsidies applied across steel, information technology and other major sectors of China’s export economy and to all companies with foreign investors or joint-venture partners. Such companies are said to make about 60% of China’s exports.

The agreement is aimed at helping US companies against Chinese competitors, but since it covers firms in which foreigners hold a stake, at least some of the cost will be borne by US investors and partners.

Another three US complaints - involving auto parts and intellectual property rights protections - remain pending at the WTO.

These and other issues are to be taken up in China December 12-13, during the next round of the Strategic Economic Dialog. Washington’s delegation, to be headed by US Treasury Secretary Henry Paulson, also is expected to ask Chinese officials to ease limits on US bank investments.

Beijing has previously scrapped tax breaks deemed offensive by Washington and has begun to allow its currency to rise gradually against a weak dollar - moves that signal not only that it is willing to accommodate Washington’s needs but also that it feels itself in a strong enough economic and financial position so to do.

Separately, China and the European Union said last week they will launch a series of high-level trade talks in March.

(Inter Press Service)  

Latest survey data pointed to a marked slowdown in the Chinese manufacturing economy during November. The headline CLSA China Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snapshot of manufacturing operating conditions – fell from October’s 31-month high of 55.2, to hit an eight-month low of 52.8.

Commenting on the survey, Eric Fishwick, head of economic research at CLSA, said: “The fall in the PMI occurred across a broad range of indicators and must, therefore, be taken seriously. The exception remains prices. The input and output price indices both pushed to record highs in November. What hasn’t changed is the margin squeeze implied by these numbers and in this context the drop in orders and activity indices raises a difficult question. Manufacturers cited rising prices for finished goods as a factor contributing to the slowing of orders suggesting that, if they wish to maintain operating rates, they will have to find ways to absorb continue rises in material costs.”

Underlying the weaker performance of Chinese manufacturing in November was a sharp easing in the rate of expansion of incoming new orders. Softer market demand and increased prices charged for finished goods were cited by panelists as the main reasons dragging growth of new business down to a four-month low. Growth of new export orders was only modest and the slowest since July.

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