The Week In Review: Acquisition leaves Xstrata mining a rich seam
Saturday 19 August 2006
Xstrata, the mining company, has finally got the go-ahead from shareholders for the £8bn acquisition of the remaining stake in its Canadian rival, Falconbridge. The deal gives Xstrata yet more scale, as well as diversification into the nickel market.
While the management has yet to be drawn on the extent of the synergies from the takeover, analysts forecast that the deal could increase earnings by as much as 25 per cent by next year.
At a time when commodity price growth has cooled, the deal is the perfect next step for a company that has delivered its shareholders phenomenal returns for the past few years. Having more than quadrupled in size in four years, it remains one of the best long-term performing stocks in the FTSE 100.
Compared to the largest mining stocks in the UK, Xstrata does not look overpriced. It is trading on less than 10 times this year's forecast earnings, and even after accounting for potential falls in commodity prices and cost inflation, several analysts believe there could be up to 30 per cent upside to its current price. Tread carefully, but for those with an appetite for risk, Xstrata is worth a punt. Buy.
Oxonica was spun out of Oxford University in 1999 and floated last year. This week came news of a key deal, which analysts believe will be worth up to $13m for the company. Oxonica will supply Turkey's national oil company with its Envirox fuel additive, which not only increases diesel fuel efficiency by 10 per cent, but also cuts carbon dioxide emissions. Buy.
AT Communications, named after founder and chief executive Alex Tupman, has agreed to buy rival Rocom, so called as its founder is Robert Old. Both have done well out of the tie-up; Old is set to walk away from the business more than £17m richer, while Tupman has doubled AT's revenues by making the deal, its fourth since listing on AIM in July last year. Buy.
Estate agency chain Countrywide has turned in an impressive set of first-half results, cashing in on a recent mini-revival in the UK housing market. All well and good. But can such growth in the housing market be sustainable after such a long bull run? Avoid.
Pipex Communications is the country's fifth-largest supplier of broadband internet services, and the price war that has erupted in the industry over the past few months has done its shares no good. However, the falls look to have been overdone. Trading at 18 times forward earnings, with a high probability that the group will eventually be taken over, Pipex shares are worth tucking away.
Hot Tuna is the only company on AIM with an ex-supermodel on its board. But Elle Macpherson is not an executive director of the surf brand just because she has a pretty face. Having built up her own clothes brand over the past 10 years, Macpherson could be just what Hot Tuna needs. The 18 to 25 age bracket it is aiming at is worth more than £1bn. Still, with little sales revenue yet, wait and see.
Prospects for growth look good at property company Hammerson, though the company is stingy with dividends - a yield of 1.6 per cent is set to more than double as a Reit, but will remain well shy of the sector average. However, this is a well-run company with good growth prospects. Buy.
Seeing Machines may not be large enough to catch the eye of many investors, but it is well worth a look. Shares in the AIM-listed imaging software developer leapt nearly 10 per cent this week after it won funding from the Australian government to continue development of its glaucoma diagnostic device. Buy.
Emergency repair group Homeserve sealed what could prove to be a truly transformative deal this week, giving itself access to another 3.4 million potential customers in the US. The tie-up with electricity group FirstEnergy may take several years to make a serious impact on the company's bottom line, but in the long term, the deal should give the group a strong foothold in a massive market. Buy.
Angus Monro spent three-and-a-half years and more than £16m transforming the bulk of the Poundstretcher retail estate into a new format called Instore. Now, Trevor Coates, his successor at Instore, is embarking on another overhaul of the business. Coates is certainly well incentivised to make a good go of it - he stands to make £6m if he can get the group's shares up to 60p over the next three years. That's a big if though. Avoid.
On Wednesday, BTG unveiled the sale of its WebNav online navigation tracking patents for $5m and a share of future profits. On Thursday, it said that TolerRx, a licensee of its diabetes treatment TRX4, had raised enough money to finance late stage clinical trials of the drug. If TRX4 makes it on to the market, BTG can expect substantial royalties. Buy.
These recommendations are taken from the daily Investment Column
Boom time continues for Balfour Beatty's projects
Balfour Beatty has done very well out of the Government's private finance initiative (PFI) scheme over the years. This week, Ian Tyler, the construction group's chief executive, assured the City that PFI is going to continue to be a key part of the Government's procurement programme for a good time to come. And it seems that the PFI model is catching on abroad. Tyler revealed that Balfour Beatty is looking at bidding for a number of projects in Asia, Europe and the US.
Meanwhile, the group continues to do very well with its core UK construction and engineering operation. It posted a 15 per cent rise in first-half profits before exceptional items to £60m. There was also news that the group's order book had hit a record £8.8bn.
Balfour Beatty, which builds railways, schools and hospitals, is the single biggest contractor working on the Heathrow Terminal Five development at present. Along with Amec and the US group Jacobs, it hopes to win the contract to manage the site where the London 2012 Olympics are to be held.
Trading at nearly 14 times forward earnings, the group's shares stand at a premium to the wider sector. However, for a quality operator like Balfour Beatty this is not expensive. Buy.
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