The Investment Column: Keep some space for boring, but buzzy, Big Yellow Group

Augean; Plant Health Care
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The Independent Online

Our view: Hold

Share price: 609p (-1p)

On the face of it, Big Yellow Group looks like an extremely boring company - providing storage space for people moving house (and sometimes office).

But the way its share price has performed makes it look like a whizzy, exciting dotcom company before the crash. However, a crash is not something that is going to happen with Big Yellow, whose business is backed by bricks and mortar and makes solid profits.

Big Yellow's success was driven by the idea of its three founders to set up storage centres in locations close to customers in big cities, rather than in industrial estates or other out-of-the way and inhospitable places.

So successful has that idea been, the share price has risen by a factor of six during the past three years.

Can it continue? The chief executive, Jimmy Gibson, reckons there is plenty of room for growth. So far, Big Yellow has 43 stores in operation, and another 19 in development with plans to top 100 in four years if it can meet its target of between eight and 10 openings a year.

There should be further benefits from conversion to a real estate investment trust, assuming a row with the Inland Revenue over Big Yellow's tax status can be overcome.

And then there is a franchise deal struck in Dubai, which will provide income to the company with limited risk if the formula can be replicated in economies awash with petrodollars throughout the Middle East.

Yesterday's trading statement was upbeat, and while annualised revenue and space occupied fell in the fourth quarter compared with the third, fewer people move near Christmas and both figures were up strongly on last year.

At 609p, down 1p, the shares are anything but cheap. Based on Merrill Lynch's 2007 estimated net asset value per share, they trade on a 53 per cent premium, and the yield, at just 1.2 per cent, is nothing to write home about. Still, Big Yellow has proved it is a company worth supporting. If it can live up to its growth promises, the shares remain worth holding even at their current exalted level.

Augean

Our view: Buy

Share price: 141.5p (-4.5p)

Handling hazardous waste is the top end of the waste management arena. As a result, profit margins in the sector are pretty impressive. Take Augean, for instance. Last year, the AIM-listed group made a profit of £3.4m on sales of £26m. These figures are expected to remain largely static during the current year and then to soar to profits of £5m on revenue of £28m in 2008. Yesterday, Augean put out a statement telling the City that it is on course to hit these forecasts.

Augean controls about 25 per cent of the UK hazardous waste market which is estimated to be worth £400m. The sector became a desirable place to do business three years ago when the European Union passed legislation insisting on the separation of hazardous and non-hazardous waste. After the edict, prices for handling the former rose fourfold.

Established players like Augean enjoy high barriers to entry. It would probably take up to seven years to set up a rival facility to that operated by the AIM group. And demand for its services is constantly rising as more and more waste is classified as hazardous.

Although Augean is valued at a high multiple of its earnings, it has a great set of assets worth a lot more than the current share price would suggest. One51 Limited, which owns a waste business in Ireland, certainly seems to think so. It recently built up a 27 per cent stake in Augean, the majority of which it bought in November for 157.5p.

Augean's management is conducting a strategic review of the business. Its sale is one option they will consider. Whether One51 has the firepower to swallow the whole group is unclear - however, there are plenty of others who certainly do. Buy.

Plant Health Care

Our view: Buy

Share price: 224p (+54.5p)

Plant Health Care (PHC) yesterday unveiled a deal with Bayer that can only be described as transformational for the AIM-listed group. Myconate, PHC's lead product, helps plants grow and greatly increases crop yields. Under the terms of the 10-year deal, the AIM group is responsible for the manufacture and supply of its product to Bayer and will receive, according to analysts, around $0.5 (25p) for every acre it is used on.

Bayer will market Myconate in conjunction with its own portfolio of products which are currently used on up to 100 million acres in the US alone. In addition, PHC will also get milestone payments from the German giant as Myconate hits various targets.

The agreement with Bayer covers only corn, cotton, soybeans and sunflowers. This leaves PHC open to seek similar alliances with other global players for other crops, and the deal with Bayer should open a lot of doors.

But PHC is by no means a one-trick pony. It has other formulas, including organic plant food which naturally increases the shelf life of vegetables. Given the tie-up with Bayer could potentially be worth up to £25m to PHC in the US alone, even after yesterday's rise the stock looks to offer good value. Buy.

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