The Investment Column: P&O's worth holding on the back of a ports business that delivers the goods

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The Independent Online

Much is written about P&O's famous ferry operations but its ports business is reckoned by the City to comprisemore than 80 per cent of the value of the group. And while the company took a hit on its ferry revenues in the first half, reported yesterday, the ports business again delivered the goods.

Ports operating profits were up 11 per cent, as volumes grew 7 per cent. Remember that world trade grows typically by some 4 to 5 per cent a year, so the company's ports volumes are comfortably beating that. This is due to P&O's focus on container shipping, which expands much faster than world trade as a whole every year.

P&O's volumes were held back by the slower performance of the UK and Australian economies, although Asia, especially China and India, was predictably strong. Due to the overall slackness, management lowered full-year guidance for ports volumes, from 8 to 9 per cent to 7 to 8 per cent.

The ferries business saw a £16.6m loss, an improvement on the £19.9m loss last year, and it was held back this time by technical problems at the port of Calais - P&O reckons these cost it £10m in missed crossings. The company said that the benefits of its ferries cost-cutting programme are coming through. It also introduced, in April, a fares system for ferries that is more akin to the way airlines price their tickets - offering more dynamic and flexible pricing. Given the Calais disruption, it has not been possible to tell yet how this has gone down with consumers.

P&O is disposing of its property portfolio, with assets standing at some £200m, compared with more than £800m a year ago. At its logistics arm, which transports refrigerated goods, profits improved, to £9.3m, from £9.0m, reflecting better productivity. Group underlying profits for the period came in at £111.5m, compared with £126.3m, as the sale of property cut down income.

The big attraction of owning P&O shares (as well as the odd discounted Channel crossing for some shareholders) is the great growth prospects of its global ports operations. As manufacturing continues to be outsourced to Asia and other low-cost areas, the volume of goods that must be shipped around the world balloons each year. Container shipping has been able to deliver 10 per cent growth year in and year out, and although P&O has temporarily fallen a little behind this, its shares remain a solid hold.

New dawn for Aquarius Platinum

Aquarius Platinum has been an ill-starred company this past year. Reporting its annual results yesterday, the mining group with interests in southern Africa said net profit fell 27 per cent to $21.0m (£11.6m) after it was plagued by problems at its open cast mine at Marikana, South Africa.

The company has also faced a tricky negotiation over black empowerment laws, and had to deal with contradictory statements on the mining industry from Robert Mugabe's regime in Zimbabwe, where Aquarius operates the Mimosa mine.

It is the Marikana difficulties that have been most galling, since Aquarius should be squeezing costs, not having to pile more money into a project to raise production. At least the South African rand, in which most of its costs are accrued, has weakened against the dollar, in which its output is priced.

Aquarius was optimistic yesterday about the scope to improve efficiency this year. Demand for platinum looks set to stay high, since it is a favourite for jewellery in the Far East and is widely used in catalytic converters and other emmissions-reducing systems in the West. It is not, however, enjoying the same price boom as other metals on the commodities markets.

Aquarius has been expanding production and extending the life of its mines, and looks a long-term winner. The shares have almost recovered to where we tipped them in 2004. Buy.

Spirent can be a winner in new generation game

Spirent, the No 2 quoted telecoms equipment maker after Marconi, is back in the red. When the telecoms infrastructure spending binge of the late Nineties ended, the company fell into losses but it wasn't meant to fall back again after the recovery in 2003. What went wrong?

The company's most exciting products include testing kits to analyse the performance of new telecoms equipment or the quality of service being offered by a telecoms network. Its customers include the network equipment makers and the telecoms operators themselves, and 2005 is proving a mixed year. Two major US customers, the operators SBC and Verizon, are in the throes of (separate) merger deals that have disrupted their buying of "service assurance" equipment from Spirent.

So a trading loss in the service assurance division, a £37m write-off of goodwill, and the £7.7m bill for 260 redundancies sent Spirent to a £34.1m pre-tax loss for the first half of 2005, compared with a profit of £16.7m last time. The expectation is that the cost cuts will tide the division over until new orders for equipment to measure the reliability of new internet protocol-based networks, of the sort that allow a heavier volume of entertainment downloads such as films on demand.

Sceptics will want to wait for evidence of orders for this new generation technology, but braver investors could do well to jump in now. Spirent is looking to sell non-core divisions, and the expectedly large rise in the level of its debt yesterday was related only to the translation of a dollar-denominated overdraft. Buy.

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