Cobham looks attractive

Pick up Paladin by the barrel; Baltimore's got that shrinking feeling
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Cobham is not in the FTSE4Good index of ethical investments. The company is looking forward to some big replacement orders for parts that go in the Javelin shoulder-launched missile and Paveway laser-guided bomb. These proved popular in the war in Iraq, and Cobham should get its slug of the new money that President George Bush has requested for the military adventure in the Gulf.

So for investors who leave their morals outside their stockbroker's door, Cobham looks an attractive share to hold for the long term.

The company - which makes military equipment and parts for both military and civil aircraft - has been a consistent performer for many years. Its half-year results yesterday showed profits were up £5m to £47.7m on turnover up more than 10 per cent.

Cobham invests heavily in research and development, as it must - and a coincidence of research bills for its new air-to-air refuelling project and a potential refit for the Boeing 747 was the only reason yesterday's figures came in at the low end of expectations. The company is also investing in acquisitions and, through a placing, shareholders gave it £105m to carry on doing so only two months ago. The company increased the interim payout by 10 per cent yesterday but still yields less than 2.5 per cent.

The company was able to boast a strong order book even though the commercial aircraft industry remains depressed. It will have to wait until Airbus, its biggest customer, is convinced the market for air travel has turned before more orders will flow, and this is likely to be 2005 at the earliest. For now, though, there seems little doubt military spending will compensate.

Cobham is neither a racy growth stock, a high-risk/high-reward recovery play, nor a hunky dividend pay. Rather, it is an understated mix of the lot. As such it seems an ideal stock to have in your portfolio, if not on your conscience.

Pick up Paladin by the barrel

Paladin resources mops up the oil in fields too small for the big players to care about.

So far this self-styled scavenger has proved itself beady-eyed in spying bargains. In May it snapped up a chunk of assets in the North Sea from BP and Amerada Hess and has significantly boosted the amount of oil the sites produce. These oil fields are also on track to meet its general rule: a 20 per cent return on each barrel of oil pumped out, provided the oil price is over $20 a barrel. It is now $26 and, with the troubles in Iraq, is likely to stay there.

While the giants of the energy world are deserting the North Sea in search of richer pickings, such as those to be found off the Russian coast, still only half the area's reserves have been pumped out of the ground. Paladin has proved that applying new technology to old reserves can boost output by about 50 per cent.

Pre-tax profits rose 41 per cent in the six months to 30 June to £45m and Paladin's shares moved up a penny to 87p yesterday. The company plans to nigh on triple its production to 100,000 barrels of oil a day by 2008. And as production grows, it plans to spend more on exploration, both in the North Sea and also in other areas such as Tunisia and Indonesia.

The shares are no longer cheap, as the company now trades close to its net asset value. However, Paladin is unusual for its size in having started paying a modest dividend (yielding about 2 per cent). It can be trusted to avoid overpaying in future swoops on assets and is worth backing for the long-term. Buy.

Baltimore's got that shrinking feeling

Roll up, roll up. Witness the Incredible Shrinking Company. Be amazed at the destruction of shareholder value. Gasp at the slide from FTSE 100 hero to near-zero. And watch in horror as the job cuts, revenue contractions and strategic setbacks keep on coming. Welcome again Baltimore Technologies, developer of internet security software.

The company even had to consolidate its shares to stop them shrinking away to fractions. Yesterday the shares were up tuppence to 35p because the company said it was sitting on cash of £14.6m at the end of July. That was more than expected and means it now has more than £30m in the bank thanks to disposals which have shrunk the business further since July.

Baltimore put itself up for sale in May, but nobody wanted it. Yesterday it promised it "will not tolerate any operational cash burn beyond the end of the year and is prepared to deploy all available means to maximise value for shareholders". That is most likely to mean a fire sale of the last business working on government IT infrastructure projects. On yesterday's evidence, this is still underperforming.

Baltimore has cash of 50p a share, but it is haemorrhaging that cash and does not have a fundamentally competitive business. A fire sale is unlikely to raise much to hand back to investors. Avoid.

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