AB Ports looks good in stormy market

Chubb; Volex
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The Independent Online

Associated British Ports may not be a thrill-a-minute business but it is certainly solid. Indeed as one of the earliest privatisations of the 1980s it was often criticised as being too solid and failing to shrug off its public sector mentality. The assets were there, including 22 UK ports, from the Humber to Southampton, but were they really being made to work?

But perceptions have been changing since Bo Lerenius joined as chief executive two years ago. He has been gradually selling off underperforming assets such as property and the Red Funnel ferry service based in Southampton. The focus is on ports in the UK and the US and yesterday's trading statement showed that things are chugging along nicely.

Group turnover in the year to December is expected to be up by 8 per cent on the previous year. Operating profits in the key UK ports business, which accounts for 80 per cent of the group, is expected to grow by at least 7 per cent. This has been driven by new business and comes despite difficult market conditions and the foot-and-mouth outbreak. The result is that underlying profits are expected to be at the top end of expectations, around £127m.

The UK business looks good and has not been affected by 11 September. ABP is securing business on long term contracts, which provides good visibility. It is pushing for major expansion including a planned £600m development at Southampton and a £150 extension on the Humber.

The only worry is the US where ABP's Amports business is involved principally in the "processing" of new cars, where the wing mirrors and other features are added on. This has suffered and profits for the current year will be below the previous year's £5.7m.

The restructuring is virtually complete with about £70m of property still to be sold taking the total proceeds to £200m. The regional airports operation in the US is also being sold and should generate proceeds of £22m plus.

With the shares up 24p to 400p yesterday they trade on a forward p/e of 14 and look decent value.

Chubb

For a business that is all about security, Chubb's defences have been penetrated all to easily during its short life on the stock market. Spun off from the Williams conglomerate a year ago, Chubb's shares hit 259.5p in the early trading. But a profits warning within two weeks of the demerger saw the shares drop faster than a felled robber. The result was a business left with a huge credibility problem.

Since then it has been a matter of sorting out the existing businesses rather than the acquisition spree the company had been anticipating. In March Robert Gasparini, the chief executive, said Chubb would need two sets of decent results to rebuild its reputation. It delivered the first set with solids interims in September. And yesterday's trading statement showed that Chubb is on target to deliver the second installment of its premise when the full-year numbers are reported at the end of February.

It was this absence of bad news that pushed the shares up 8p to 163.5p yesterday. Sales at constant exchange rates are expected to be 9 per cent up on last year with profits of £113m. Sales growth is good with sales up by 10 per cent in UK, Ireland and South Africa, 20 per cent in continental Europe and 25 per cent in the Americas. The biggest hit has been in the Tessa Entry business in the United States where its emphasis on US hotel locks business has left it exposed to the big drop in the market post 11 September. But that has been deemed non-core and the business may be sold.

A sign of confidence returning was that Chubb felt able to talk about acquisitions in the fast growth in electronic security sector though they will be small, £20m add-ons rather than major deals. The shares trade on a forward p/e of 18 and are starting to look interesting.

Volex

Volex, the electricals company, blew another fuse yesterday, saying it was "unlikely" to meet expectations for the current year to 31 March after trading conditions deteriorated, particularly amongst its telecoms customers.

Sales for the full year are now expected to be 33 per cent beneath last year's levels at around £280m. That is a marked deterioration from the half year where sales dropped 26 per cent. It now expects to show a break even position at the operating level for the year before restructuring costs. The shares, which were a high-flyer in the dot.com boom, plunged 72.5p to 237.5p.

Volex makes copper wires and fibre optic cables for companies such as Baltimore Technologies and Lucent. It has already undergone a restructuring, it has not been able to cut overheads quickly enough to offset the fall in demand.

Analysts now expect the company's sales to be flat for two years and predict Volex will fall heavily into the red at the pre-tax level this year with a forecast loss of £3.5m. Earlier this year, some analysts had expected the company to turn out a £30m to £40m profit.

While the company said it is continuing to review its cost base, with a further announcement expected early next year, margins are likely to remain under pressure thanks to the emergence of new competitors.

Furthermore, economic conditions are likely to remain challenging for some time while companies in the telecoms sector have yet to show signs of increased spending.

With analysts predicting no real upturn until 2004, Volex's recovery still seems some way off. There is no reason to chase the shares.

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