The Investment Column: Severn Trent worth tapping in to
DAT Group could still be a buy for the risk-takers; There's a gusher in view at Burren Energy
Tuesday 05 April 2005
Summer is approaching and hosepipe bans are becoming a common event in the UK, particularly in the South-east. Not so, however, for customers of Severn Trent, which said yesterday it had plentiful reserves.
With more than 75 per cent of the group's profits coming from the highly regulated water industry, investors should be pleased with yesterday's trading statement ahead of its full-year results. Performance has been solid, with the water division outperforming investment targets set by the industry watchdog, Ofwat.
There are, however, areas of concern. Severn operates laboratories in the US that carry out environmental tests on soil samples. As well suffering from the weak dollar, Severn is also facing tough competition in this sector. This is unlikely to ease soon.
Integrating Hales, the waste management business it bought in 2003, into its Biffa division has also had an impact on the group. Volumes have been flat but synergies are now starting to emerge, which should kick-start its performance. Severn should then be primed to capitalise on increasing demand for waste management from local councils, which are looking for alternatives to landfill sites.
After a management clear-out last year, Severn has a new chairman, chief executive and finance director to maximise on the next five-year price regime set down by Ofwat. New, higher prices begin this year, but the industry must, in turn, invest in the country's water infrastructure. The new team at Severn has to make these improvements as efficiently as possible in order to return as much as possible to shareholders.
The shares have had a good run since Ofwat announced its initial price increases last year, as Severn is seen most capable in the sector of making the necessary efficiencies and delivering the best returns. Analysts at Merrill Lynch still have a price target of 1,010p on the stock, however, which gives it some 11 per cent upside from current levels. With a dividend yield of about 5.5 per cent and the vigour of the new management team, Severn's shares are a buy.
DAT Group could still be a buy for the risk-takers
Shares In DAT Group, the mobile telecoms software provider, have more than tripled since the company floated on London's junior market, AIM, in December.
As one of the leading lights in the sector for "smart" phones - those that can download data - its disciples believe it is one of the best placed companies to take advantage of an anticipated boom in "smart" technology over the coming years. And as word has spread over the past months, investors have been piling in.
Although DAT already has contracts with most of the major networks and handset providers, its great hope for growth lies in the success of Tabella, a new platform designed to rival the successful Blackberry system, which gives users remote access to e-mail, internet and other data systems. DAT owns an 80 per cent stake in Tabella and claims it has a number of advantages over Blackberry, including a device that allows you to destroy your phone by remote control if it falls into the wrong hands.
The shares fell 9 per cent yesterday as it announced its first set of full-year results, the first significant drop since listing. Much of this can be blamed on investors taking profits.
However, trading at 64 times this year's earnings, DAT is certainly not cheap. And if "smart" technology does not continue to grow as expected, investors could get stung. For those with appetite for risk, however, this stock remains worth a punt. Buy.
There's a gusher in view at Burren Energy
Burren Energy, the oil company that focuses on the Caspian region and West Africa, has released a set of highly impressive maiden results.
Burren's pre-tax profits soared 163 per cent to £48.5m last year, with revenues up 85 per cent to £87m, delivered thanks to an increase in production of 74 per cent to 14,200 barrels of oil per day.
It has no plans to stop there - Burren wants to drive production to 24,000 barrels by the end of the year to take advantage of rocketing oil prices.
The group's reserves rose by 22 per cent in 2004, to 146 million barrels.
The Congo accounted for 44 per cent of that, where reserves nearly tripled, partly offsetting a 15 per cent decline in resources at the Turkmen field.
Finian O'Sullivan, Burren's chief executive, signalled further rises in the Congo as his company accelerates development, although he said the rate of growth in reserves was likely to be "more modest" than last year at about 10 to 15 per cent.
The acquisition of a 26 per cent stake in India's Hindustan Oil Exploration company also bodes well for the group's growth objectives. Burren has the option to raise the stake to 51 per cent by the summer, taking the cost of the purchase to up to $65m (£35m).
The group can fully fund the acquisition if oil prices stay above $35 a barrel - it predicts oil prices will stay above $40 a barrel for most of the year. At 536p, the shares trade at a not unreasonable 16 times 2005 earnings.
This year's figures should be better still, with output set to increase by more than 50 per cent and oil prices likely to be higher.
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