Aberdeen sows seeds of recovery

PHS; United Drug
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The Independent Online

It was a hairy summer for Aberdeen Asset Management. Not only did its technology funds, for which it became a private investors' favourite amid the millennial exuberance, just keep on sinking. Its other speciality, split-cap investment trusts, got themselves a bad name for becoming dangerously indebted because of falling equity values.

So results for the full year to 30 September look a bit peaky. A giant acquisition spree meant assets under management rose £12.8bn to £34.7bn, but the figure would have been more than £40bn had it not been for "adverse market movements", which wiped out £6.3bn of Aberdeen customers' money.

The seeds of share price recovery are well sown, though. The acquisitions have left Aberdeen with a much healthier business mix, with only 50 per cent in equities, and a growing position in property investment products. It has taken over Murray Johnstone, Barclays Property Investment, and Equitilink in the past year. Write-offs associated with recent acquisitions sent pre-tax profit down 28 per cent to £24.6m, but underlying profits rose 37 per cent to £48.2m.

There was strong organic growth in Ireland, Canada and the Far East, too, reducing Aberdeen's reliance on the UK.

Even with conservative assumptions on new fund inflows and a guesstimate of a 6 per cent rise in the FTSE AllShare, earnings look like rising to 22.8p in the current financial year. That puts the shares, down 5p to 381.5p yesterday, on a multiple of 17 times, a discount to Amvescap and Schroders, despite Aberdeen's better margins.

The split-cap controversy has receded since equity markets rebounded after Aberdeen's year end, and while the group will pump cash in to cut debt at some of its most highly geared funds, this is not likely to be more than 1 per cent of the group's revenues.

While Aberdeen admits that the current year has started "quietly", sustained growth from the equity markets, and tech stocks in particular, could tempt customers to put more cash in its funds next year. Aberdeen shares are a good bet.


PHS's business splits neatly into four: "washroom services, dust mat services, live and replica plants and water dispensers". In other words, it loans out welcome mats, hand-driers and pot plants, and pops in occasionally to water them. It is possibly the most boring company on the stock market, but without it, its corporate customers' offices would be dirty, soulless, thirsty places.

Set up in 1963 in Caerphilly, Wales, the group had its maiden results as a quoted company yesterday, showing turnover up 20 per cent to £58.3m in the six months to 30 September, and a return to profit, with £1.7m pre-tax. It made 17 aquisitions in the period, and organic growth was 9 per cent thanks to initiatives to boost customer loyalty. These all have snazzy names like Project 24/24 (a scheme to ensure customers requests are dealt with in 24 hours) and Leads United, to incentivise the sales team.

Management are particularly excited by water dispensers. Market researchers have told them the number of offices using water fountains will double in the next four years.

Boring, perhaps, but a good record of progress on several fronts. The June flotation raised £250m to bring gearing down below 30 per cent, so the group should also benefit from much lower interest payments.

The shares, down 1.5p at 85p, are valued in line with Rentokil, its larger rival, but PHS offers faster growth. Hold.

United Drug

Ireland's largest pharmaceuticals wholesaler, United Drug is doing all the right things. It is improving its warehouse facilities, switching hospital clients to online ordering, and wooing new suppliers with the ability to give them additional data on product sales.

Results for the year to September showed revenues up 17 per cent, profit up 22 per cent and market shares increasing across the group. With the Irish government increasing health spending, the growth looks set fair to continue.

There was also a pleasing contribution from Ashtead, a recently acquired business hiring out sales forces to drug companies. It is drawing up plans to build a similar contract sales business in the US.

United Drug has its main listing in Dublin, but is also traded in London, where the shares were up 5p to 885p. On a price-earnings multiple of about 17, the stock is good value.