The Investment Column: Weir bucks the flow with plenty in the pipeline

Carluccio's; Datong

Our view: Hold

Current price: 754p (-8.5p)

We last updated readers on the Glasgow-based industrial pump and valve maker Weir Group in August, when interim results were strong enough to convince us that there was more upside.

Since then, the shares have risen almost 15 per cent against a weak wider market, and yesterday's full-year pre-close trading statement and acquisition of CH Warman Holdings should provide further fuel for Weir's growth story.

Continued strong performance in the second half of the year means that Weir expects to report full-year profits at the top end of market forecasts something in the region of 115m. Year-on-year group revenue for the first 44 weeks of the year is 15 per cent ahead of the same period in 2006.

The company has transformed its finances over the past few years, and yesterday's acquisition of South African minerals pumps group Warman, for 113m in cash, should be earnings-enhancing in the first year, even if at 13.1 times earnings the deal looks to be slightly pricey. Another recent acquisition, the Texas-based oilfield pump specialist SPM, should report full-year revenue of $350m (170m), also ahead of forecasts.

Weir has benefited from the booming natural resources industry, and while there is no reason to assume that the bottom will fall out of that market, investors should be cautious the shares trade at a hefty premium to the engineering sector and the company is now heavily weighted towards the natural resources industry.

But Weir is a well-managed business that has transformed its fortunes over the past four years.

In the longer term, with the discovery of new natural resources at a premium, Weir looks ideally placed to continue to benefit from its strong market position and well-respected brand names. But with one eye on the rest of the market, the excellent performance the shares have put in over the past year may slow. Hold.

Carluccio's

Our view: Buy

Current price: 157.5p (+3p)

Thanks to the concern over the slowdown in consumer spending and grim profit warnings from the likes of Clapham House and Regent Inns, shares in the Italian restaurant chain Carluccio's have lost almost one-third of their value since June. But if investors think this chain is suffering the same fate as its competitors, they should try to get a table at lunchtime.

Yesterday's full-year results were particularly impressive in light of troubles elsewhere. Increased margins and a focus on costs resulted in a 66 per cent jump in pre-tax profits to 5.3m, ahead of forecasts, while the dividend is up just short of 50 per cent, proof that the company is feeling bullish about its prospects.

Six new restaurants were opened over the course of the year, keeping up with management's conservative expansion policy. Of those, three were in London, including a new flagship site at Covent Garden.

The Carluccio's concept of not allowing bookings, providing good value but innovative Italian meals, opening in time for breakfast and selling higher-end Italian food products, is clearly working. The company plans to expand the chain outside the UK and has signed its first franchise agreements that will see a first Dublin site open in 2009.

Carluccio's should be in a strong position to ride any major consumer spending downturn. With an average spend of 12 per head, eating out at Carluccio's is unlikely to dent wallets.

Although the shares still trade at a lofty 18.5 times forecast 2009 earnings, the recent heavy selling has produced an excellent buying opportunity for riskier investors. The chain is still growing fast and has plenty of potential expansion. Buy.

Datong

Our view: Hold

Current price: 100p (-12p)

Shares in Datong took a dive yesterday on disappointing first-half results. The Leeds-based company develops high-performance surveillance equipment used by governments, military organisations and law enforcement agencies to covertly track suspect vehicles, packages, containers and mobile phones. Yet despite being well-positioned to benefit from increased government spending on counter-terrorism, Datong missed the mark over the past six months.

Datong's management provided a confident outlook for the second half, but the impact of a weaker dollar and increased investment in R&D virtually wiped out profits in the first half.

Revenue growth of five per cent was below expectations and profit slipped to 24,000 from 261,000 a year ago. The company makes around two-thirds of its revenue in the second half and it assured analysts that it is on target to report its fifth consecutive year of organic growth, pointing to a host of new product releases over the next six months. But large government security contracts are prone to slipping, so some nervousness is understandable.

Datong is a good quality company and its valuation of 11.5 times next year's projected earnings is undemanding. However with so much riding on the second half, investors should hold for now.