The Investment Column: Improvements in store at Vanco after Somerfield deal

Renold; Medical House
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Our view: Hold

Share price: 422p (+11.75p).

Vanco has lofty ambitions. The mid-cap telecoms group, which commands a market capitalisation of just under £300m, believes it has the potential to become a FTSE 100 company. While Vanco has a lot of hard work to do before it earns blue-chip status, it won over some critics yesterday by securing a contract with the supermarket chain Somerfield, its largest to date.

Although Vanco competes with the likes of Thus and BT for corporate business, the company has an entirely different business model. It does not own any network infrastructure and instead acts as an intermediary in the telecoms sector. Its customers - including the likes of British Airways, Avis Europe and Ford - are typically spread across a number of locations. Such multinational customers outsource the purchasing and management of telecom network equipment to Vanco which then strikes the best deals it can with local suppliers.

Vanco won the Somerfield contract from BT. The £18.6m deal covers the retailer's 873 stores as well as a handful of other sites, and increases confidence in the group's progress. Analysts expect more of the same over the coming months, with some forecasts factoring in around £100m of new orders in the second half of the company's financial year.

With the group expected to double its pre-tax profits to £28m next year, its shares look to be on solid ground despite a weighty valuation at 23 times expected earnings.


Our view: Buy

Share price: 113.5p (+7p).

Hanover Investments looks to be repeating the success it had at speciality chemicals group Elementis and promotions firm 4imprint. Shares in Renold, the maker of industrial chains where the activist investor has a 15.5 per cent stake, soared to a five-year high yesterday after unveiling the sale of its machine tools business for £6.1m to private equity.

Hanover has a very distinct modus operandi. It tends to take sizeable stakes in unloved companies, shake up the board and then push through a major restructuring. This is exactly what is has done at Renold since the summer. Having built up its stake in August, when the shares stood at around half their present value, Hanover has since installed Matthew Peacock, the former BZW banker who heads the investment firm, as chairman and Rod Powell, formerly a senior manager at the engineer Invensys, as a non-executive.

The boardroom coup has left Renold firmly focused on its chain-making business - yesterday's announcement marked the last of a number of non-core disposals.

Thanks to Hanover's involvement Renold looks firmly on the road to recovery after years of malaise. Recent results showed that its costs are falling and its sales rising. This trend has been greatly aided by the decision to move a large chunk of Renold's production to low-cost economies such as Poland, China and Malaysia. The great thing about being in these countries, particularly in China, is that not only does it reduce a company's costs but it also gives it exposure to a booming local market which is great for sales growth.

Since Hanover got involved with Renold, the chain maker's shares have more than doubled. The reforms it pushed through at Elementis and 4Imprint produced multi-fold increases in the value of both companies. By that measure, Renold's stock has a lot further to go.

Medical House

Our view: Worth a punt

Share price: 38p (+7.5p).

Medical House unveiled the biggest licensing deal to date for its AutoSafety syringe yesterday. The company could not say who its partner is, but indicated that it was a global pharmaceutical player. More importantly, the deal is worth £27m to Medical House over the next five years and follows a similar tie-up earlier this year with Swiss group Serono.

The AutoSafety syringe is designed to make it easy for patients to administer treatments to themselves and is perfect for those who take regular doses via an injection. Because the needle is hidden from view at all times, patients tend to prefer it over traditional alternatives.

The deal is certainly significant for the company when one considers that even after yesterday's share price jump the whole enterprise is valued at just £22m. With momentum building, its stock is worth a punt.