Private Investor: A little Docklands wonder that's worth catching
Saturday 05 March 2005
Regular readers will know that I don't have a terribly well developed theory of investing that I stick to religiously, like Warren Buffet or Jim Slater, say.
Regular readers will know that I don't have a terribly well developed theory of investing that I stick to religiously, like Warren Buffet or Jim Slater, say. The fact that they are where they are and I am where I am suggests that of the three of us, one has not quite got the hang of this getting rich game.
Never mind. Modest returns are the best that I think most of us ought to aspire to, from well diversified portfolios with an eye to the long term. One thing that is always worth looking for, however, is a good "secular" growth story, one that will sustain pretty much whatever happens to the economy short term, and, indeed whatever befalls the nation politically.
Thus the liberalisation and expansion of the gambling market should be one lucrative area for those operating in it, despite the climb-downs the Government has to execute in its Gambling Bill. The relaxation of the licensing laws is another.
Both policies are morally reprehensible, as they will increase drunkenness and addiction to gambling, the evils of which will be known to anyone unfortunate enough to have brushed with them. Booze and betting can be fun, but they can also destroy families. Yet the opportunities for investors to profit from vice are clear to all, and that is why I have shares in Sportingbet and Scottish & Newcastle, for example.
The other secular growth story that has been well chronicled over the years but which never seems to pause for long is the trend to outsourcing. There are plenty of companies now crowding into this field, and I have bought Capita as a good way into this market. I think that Serco is an even better bet though, and one that I have neglected until now, when its very good results this week caught my attention.
For Serco not only gets stuck into the routine sort of PFI style activity such as rail franchising and running young offenders institutes (another play on human vice, but I digress); it also has an interest in running some our speed cameras.
These much loved national institutions can only proliferate as the public authorities use them more and more as a revenue raising device. If they were all about safety - and I concede that they must always be partly about safety - then surely the authorities would not make them so hard to see and easy to miss. For if the Government really wanted its "safety camera partnerships" to keep death off the roads they would be planting gigantic signs warning about speed traps well in advance.
No matter. There are hardly any on the motorway network, they are still relatively uncommon in some parts of the country and developments in technology will make them ever more difficult to evade. Drivers may be infuriated by the fines they have to pay for comparatively minor transgressions, but it is all good news for Serco and its shareholders.
And it's not all Gatsos; the other bit of Serco's business that seems set to continue its success is the Docklands Light Railway in London. Despite the coming of the Jubilee Undergound Line to Canary Wharf and Stratford, the DLR is still a busy little railway, largely automated and very reliable. It is an excellent play on the continued success of London's Dockland business district, which has now grown to such a critical mass that it ought to be able to withstand most recessions (as it spectacularly failed to live through the last one).
Serco seems a good bet to have its contract to run the DLR renewed next year. The only risks with Serco are its expansion into the IT business in the UK and the defence industry in the US, both by recent acquisitions. Companies like Serco ought to stick to their knitting, but the risks seem in proportion. So I shall be buying into Serco on the first hint of weakness in the share price, and possibly before. Maybe Warren and Jim have shares in it too.
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