The Investment Column: Hanson can cement rise in its shares and profits

BBA Aviation; Betbrokers
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Our view: Buy

Share price: 760p (no change)

Shareholders in the building materials group Hanson have had a roller-coaster year. After bid rumours first began engulfing the stock at the end of 2005 - following a wave of consolidation in the sector - the shares began their run towards an all-time high of 880p, which they hit in March, almost twice the level at which they were trading just 12 months earlier.

But once the market caught a cold later in the spring, Hanson's shares tumbled, only to shoot up again sharply this autumn, when rumours of interest from the Mexican building firm Cemex began to circulate.

So is investing in Hanson merely a short-term bet on whether it will successfully be acquired? Opinion in the City is polarised.

On the downside, the economy in the US, where the company generates almost half of its revenue, is fragile; while a slowdown in the US housing market appears to already be under way. In the UK, conditions also remain challenging.

Nevertheless, trading at a price equivalent to 14 times its annual profits, the company does not in fact look absurdly expensive, in spite of the recent meteoric rise in its share price. Furthermore, it remains a well-diversified business, with exposure spread across the US, UK, Asia and continental Europe - giving it some protection against localised economic slowdowns. Its trading statement yesterday showed that all divisions of the company are currently performing well, and that the group is on target to achieve double-digit profit growth for the year.

While Hanson's valuation is certainly significantly higher than it was even 12 months ago, there is enough momentum in the business to justify this, regardless of whether it gets bought out or not. Speculators looking for a quick return may well be rewarded. Rumour has it that if Cemex's current pursuit of the Australian company Rinker does not come off, Hanson is next on its shopping list. If it retains its independence, however, investors will still see some reward. Buy.

BBA Aviation

Our view: Hold

Share price: 275.5p (-4.5p)

Having completed the demerger of its specialist fabrics group Fiberweb at the start of last month, BBA Aviation is a much more uncomplicated and focused company than it once was. Today, its business breaks down into two complementary divisions: Flight Support, which includes refuelling and handling services for the commercial aviation market, and Aftermarket Services & Systems, which specialises in the manufacture and maintenance of aircraft parts.

Publishing its first trading statement since the demerger, the group pointed to the ongoing strength in the aviation market as a whole. Furthermore, margins in its flight support division are improving as the company takes advantage of its dominant position in the US market.

However, the weakness of the US dollar, in which the company generates around three-quarters of its revenues, continues to be an issue. Every 1 cent movement wipes £400,000 off pre-tax profits at the group level - not an enormous problem when the dollar is stable, but fairly worrying when it deteriorates by more than 10 cents in a matter of weeks, as it has recently. On the upside, the interest payments on its debt are a little cheaper.

But perhaps the bigger worry for investors in BBA is its rather overstretched valuation. Trading at more than 18 times this year's forecast earnings, it is priced at a premium of more than 25 per cent to the rest of the sector. Furthermore, shareholders have seen the dividend slashed as a result of the demerger.

Although there is still promise in BBA - and there remains an outside chance of takeover interest over the coming year - now is not the time to buy this stock. Existing investors should sit tight.

Betbrokers

Our view: Buy

Share price: 10p (-0.25p)

There's an old adage in the City which goes something like this: "Stocks that half, half again." And since listing on AIM six weeks ago, Betbrokers - a company which helps high rollers place large bets at the best odds - has almost fulfilled the first half of this maxim. So is it time for investors to cut their losses and bail out?

The company has certainly cut itself an interesting niche, and while it may have floated a little prematurely, it perhaps deserves a little more than two months to prove its worth. As well as accommodating high-rolling punters, the business also operates as an intermediary for bookmakers looking to lay off or take on some risk, without exposing their position to their competitors.

Although the stock provides investors with some exposure to the gaming industry, it has the advantage of coming without any attachment to the US - and the current regulatory mess over there - and does not take on any direct gambling risks itself. This is basically a financial services business which services the gambling industry. Unlike Ladbrokes or Rank, investors will never be surprised with the news that profits are down due to a bad run of unlucky sports or casino results.

The gamble with Betbrokers is simply whether it will take off. Yesterday's trading statement reassured investors that the company will meet its full-year expectations, and revealed a promising increase in customer numbers since the IPO.

This is not a stock for widows and orphans. But if you are looking to put your faith in a risky start-up venture, Betbrokers promises some excellent returns if it succeeds. Buy.

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