A high price for AEA's appliance of science

Investment Column

WHAT HAS possessed British fund managers? A few years ago, they could not be persuaded to go near anything that looked vaguely scientific. Now just the mention of the word "technology" is enough to have them chomping at the bit.

Just ask AEA Technology. The company, which started life as the bits of the Atomic Energy Authority the last government deemed safe to flog off, was floated late in 1996 at a share price of 280p in an issue billed as the last privatisation. Since then, the shares have trebled in price, adding another 9p to 860p yesterday.

That seems fair enough for a company which is involved in exciting businesses ranging from long-life rechargeable batteries to satellite systems that spot leaves on train tracks. But a glance at the figures shows AEA's growth is less impressive.

True, turnover jumped 17 per cent to pounds 308.4m, but this growth was largely fuelled by acquisitions. In the underlying businesses, turnover was flat at best. And although AEA managed to produce organic profit growth of 10 per cent by cutting costs, the scope for further efficiency gains seems limited.

Not that AEA is necessarily to blame. Work from the old Atomic Energy Authority, which is still in public hands, is declining because the contracts are now put out to tender. And AEA has done well to replace most of the work with sales to the private sector - up 43 per cent last year - and overseas customers, which rose 36 per cent.

AEA has some promising growth businesses. Its environmental division and rail unit - which is eyeing up opportunities in newly privatised sectors overseas - look especially well placed. But a rating of 31 times stockbroker Merrill Lynch's forecast for this year's earnings looks hard to justify. The shares are high enough.

DBS brushes aside problems

DBS MANAGEMENT, the support network for independent financial advisers, has had a terrible year. So why do shareholders still like the stock?

In September, DBS was fined pounds 425,000 by the Personal Investment Authority for failures in reviewing thousands of cases of potential pension misselling. The company then alienated some of its members by trying to charge bank- manager-style rates for sending out letters on their behalf. Members rebelled and DBS had to climb down.

Yet the market is unperturbed. DBS shares have boomed since, hitting 330p at their peak earlier this year. Yesterday they slipped 17p to 234p. Even so, they have risen four times as fast as the market since their debut three years ago.

DBS has tackled its problems in two ways. First, it set aside almost pounds 7m to complete its review, prompting a 58 per cent drop in pre-tax profits to pounds 2.6m. Second, it has had a management shake-up, appointing Tony Kempster, formerly of Prudential, to head its IFA business.

The market appears to think DBS will ride the boom in financial services, while IFAs will take an ever-growing share of the market. Analysts think earnings will bounce back to pounds 10m next year, putting the shares on a forward p/e ratio of 17.

But DBS is a compliance business, and the arrival of statutory regulation may increase costs. Meanwhile sales - which drive the commissions that are DBS's main source of income - are very cyclical. Only for the brave.

Save shares leap on takeover talks

JAMES FROST has wanted out of the Save Group for some time. So speculation that the petrol retailer, formerly known as the Frost Group, was about to be sold always had some credence.

This time it is serious. Mr Frost, Save's chairman and founder, admits takeover talks are under way but says it is still early days. Kuwait Petroleum Corporation, which trades on the forecourt as Q8, denies it is the predator.

Save's share price leapt 22.5p to 136.5p yesterday, valuing Save, in which Mr Frost has a 4.5 per cent stake, at pounds 127m. That is a decent price for a company which reported pre-tax profits of only pounds 9m in the 12 months to December.

Keeping Save's independence always looked difficult. Save has seen most of its fellow independents either consumed by the oil majors or driven out of business by a vicious petrol price war which has led to a significant reduction in the number of outlets.

This should help Save, which owns 407 facilities and operates another 100 which are owned by dealers. Analysts expect profits of pounds 13m this year.

If the mystery bidder is going to pay anything close to the pounds 150m-pounds 180m implied by the price Shell paid Gulf for its forecourt business last year then Save shares look cheap. But this deal is far from done, and shareholders should be braced for disappointment.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?
Season's finale brings the end of an era for top coaches and players across the continent

The end of an era across the continent

It's time to say farewell to Klopp, Clement, Casillas and Xavi this weekend as they move on to pastures new, reports Pete Jenson
Bin Laden documents released: Papers reveal his obsession with attacking the US and how his failure to keep up with modern jihad led to Isis

'Focus on killing American people'

Released Bin Laden documents reveal obsession with attacking United States
Life hacks: The innovations of volunteers and medical workers are helping Medécins Sans Frontières save people around the world

Medécins Sans Frontières's life hacks

The innovations of volunteers and medical workers around the world are helping the charity save people
Ireland's same-sex marriage vote: As date looms, the Irish ask - how would God vote?

Same-sex marriage

As date looms, the Irish ask - how would God vote?
The underworld is going freelance: Why The Godfather's Mafia model is no longer viable

The Mafia is going freelance

Why the underworld model depicted in The Godfather is no longer viable