The Investment Column: Schroders' long-term story is still looking good

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The Independent Online

Furthermore, while Schroders was already sitting of surplus capital of some £700m when Mr Dobson arrived at the helm - from the sale of its investment banking arm to Citigroup - he has resisted making the kind of hasty value-destroying acquisition which asset management companies have been known for in the past.

While Schroders' investors are more than happy with their frontman's performance (and were even happy to approve an annual pay package in excess of £2m at the last annual meeting), there is a growing impatience to discover exactly when the group is going to use its spare cash. Although the management insists it has looked at many deals over the past 12 months, it has yet to pull one off. No hurry.

Remember that across the existing business, investors have few complaints. Releasing the interim results yesterday, the group boasted a 43 per cent rise in underlying pre-tax profits, with gross margins improving significantly across the company.

New business levels also continue to grow rapidly, helped by the group's impressive investment performance, where 70 per cent of funds have outperformed their benchmark over the past three years. That has encouraged investors to put their money with Schroders instead of with its rivals.

These have been the drivers behind the company's impressive share-price performance over the past few months, with the stock rising more than 13 per cent since we last recommended it almost six months ago. And the long-term story for investors still looks good.

The shares now trade at more than 20 times this year's predicted earnings, which looks steep, but the market value of the company is inflated by its surplus capital.

Investors will not know for sure whether the valuation is justified until the money has been spent, and with Mr Dobson's track record, the chances are that Schroders can and will justify its share price. Indeed, there is still has room for improvement if the impressive trading performance continues. Buy.

Rok Property Solutions seems to be a solid enough investment

Rok Property Solutions describes itself as "the nation's local builder". It is a good soundbite, but more than that. With this philosophy it has built a successful group of businesses in commercial property development, housebuilding and odd-job work.

Hiring the right local teams is key, since they have knowledge of what buildings are needed by the community and they can be bestest buddies with the planning authorities. This "local" emphasis also serves to encourage a lack of risk-taking, ideal in an industry notorious for cost overruns, incompetence and financial results bathed in red.

Yesterday's interim results (profits up 13 per cent if you strip out one-offs; a dividend increase of 34 per cent) were cheered by the City as the fifth consecutive set of record figures, and Rok shares were up a ha'penny to 524.5p.

The figures also show the company gearing up (literally, since debt rose from £17m to £36m) for the future. It has been buying new plots to ensure there are future opportunities for the commercial property development arm, Rokeagle. And it is investing in new staff at the maintenance arm, Rokforce, to service national contracts for commercial maintenance for Royal & SunAlliance's buildings insurance customers.

The company does not make a particularly convincing case for the synergies of having Rokforce in what is mainly a construction company, but while margins increase over the next few years, it is worth having. The risk is a bonus dispute with a former director who is demanding £5m in the courts. Hold.

BPP confirms our faith as recovery continues

This column has been a fan of BPP for several years. The professional training group runs courses for accountants, City recruits and human resources directors, and has been building law schools around the UK. Its shares are up 60 per cent since we first tipped them in 2002, and 35 per cent since a year ago.

The company has been firmly in recovery phase, after feeling the effects of the downturn in the City when the dot.com bubble burst. It is only now, almost five years on, that its courses are filling up with new graduates. It anticipates (as did Michael Page International, the recruitment consultant, on Monday) that there will more demand this year for graduate recruits in the financial professions. The cycle ought to have several years further to run yet, and there will be opportunities from the need for accountants to keep up to date with changing standards.

Meanwhile, the company beds down its new law school in Leeds and will open a third in Manchester. These take three years of intakes before they are running at capacity, so the start-up costs are considerable. They will be highly profitable when they are full.

The only bit of the business which couldn't guarantee to be profitable was the Linguarama language schools chain, which was sold for £3.5m. The price is poor, but it removed an element of risk for the group. Which is useful given the share rally has sent the valuation up to 18 times earnings and the dividend yield down to 4 per cent. Hold.

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