The Investment column: Stick with Exel as it battles to stave off unwelcome predators

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The Independent Online

Exel has been one of the top performers in the FTSE 100 this year. Shares in the logistics and freight services group have rocketed as takeover rumours to swirl around the company, especially after its German rival Deutsche Post received approval from its shareholders to raise fresh equity for acquisitions.

Exel has been one of the top performers in the FTSE 100 this year. Shares in the logistics and freight services group have rocketed as takeover rumours to swirl around the company, especially after its German rival Deutsche Post received approval from its shareholders to raise fresh equity for acquisitions.

Deutsche Post is keen on diversifying out of Germany in the run-up to 2008, when its monopoly on letter delivery expires. The US firm UPS has also been touted as a possible bidder.

Exel's £328m acquisition of the haulier Tibbett & Britten last year showed that good cost savings can be achieved if logistics players, in what is a still a very fragmented industry, come together. However, Exel is reining in its acquisition spend and is returning up to £250m to shareholders - perhaps to try to stave off unwelcome predators.

An upbeat trading report from the company yesterday gave some relief to its stock, which has fallen recently on concerns about higher oil prices and slowing global growth. Operating profits have grown "significantly" at its contract logistics division, which generates 65 per cent of turnover, thanks to recent acquisitions of T&B, Fujitsu Logistics and Power Packaging. The only problem area seems to be Tradeteam, the UK beer delivery joint venture. This weak performeris unlikely to recover until next year.

The freight management business, which helps customers ship goods around the world, has seen good profits growth, with operating margins up from last year. The Asia Pacific region is the main driver of revenue growth, and Europe is also performing well. Meanwhile, the US has shown no improvement, disappointing investors as revenues are unchanged from last year.

Another concern is that growth in airfreight volumes remains fairly sluggish: it has slowed from the high rates seen last year to rise only 5 per cent so far this year. Sea freight put in a stronger performance, reporting a 25 per cent rise in revenues.

The biggest part of the rest of the business is its environmental sector, which transports waste, also a growing sector.

The company has denied a bid approach, but Exel's global footprint and broad customer base make it an attractive target. But at 19 times earnings, it looks fully valued for now. Hold.

Dobbies to grow into something big

Dobbies Garden Centres has been trying to make a trip to the garden centre a day out for all the family, installing restaurants, mazes and water gardens to pull in the crowds.

Shame an unseasonally cold Scotland, where it generates two-thirds of its sales, kept families indoors this winter. The company said yesterday that like-for-like sales were up only 1.5 per cent over the six months to the end of April and had slowed even further since then.

Dobbies is still a seedling of a company, however, with only 18 sites. Opening two new stores in Stirling and in Ponteland, Northumberland, caused a 9 per cent drop in its interim pre-tax profits to £1.7m, but the expense is paying off and the stores are now trading above expectations.

These new stores are only the beginnings of a much bigger expansion plan. Four further sites are on the way, with the company planning to achieve £100m of turnover by 2008. All its sites are freehold property, which gives it a solid asset base from which to expand further.

Readers who followed our advice have earned themselves a 40 per cent profit over the past year as the company has delivered on earnings promises. The shares are currently a racy 16 times earnings, particularly for the retail sector, which is experiencing tough times.

But the garden centre sector is likely to blossom over the longer term. Keep buying while the company shoots up.

'Boring' Bunzl is still worth holding on to

Bunzl's business activities hardly set the pulse racing. It is a one-stop shop that supplies all those bits and bobs companies need, from carrier bags to mops to hard hats to first-aid kits to cutlery. It worries about where to find the cheapest polythene wrapping for the deli counters of supermarket chains like Wal-Mart.

It may be labelled boring Bunzl, but shareholders have been well served by the company's dogged determination to make itself a world leader in the mundanities of the retail, healthcare and catering sectors. Reliable earnings growth, brought by more than 20 acquisitions, have led to a near doubling of its share price in five years.

Issuing its first trading update since the demerger of Filtrona, its cigarette filters business, this year, Bunzl said yesterday trading was in line with expectations. The supermarket sector in North America "remained difficult" as consumer spending slows, and with more than half its sales from the US, it is exposed to the weak dollar.

But Bunzl is spreading its customer base, covering a wider range of sectors to include the food manufacturing, cleaning and convenience store industries.

It has also made a large leap in to the economically depressed Eurozone, buying the French Groupe Pierre Le Goff last year, but the additional scale should help it ride out the downturn.

At 557.5p its shares are not a bargain at about 14 times 2005 earnings. But then again, Bunzl rarely fails to deliver for its shareholders. A solid hold.

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