Investment Column: Spirent offers long term hope

Robert Wiseman ready to deliver growth; Ashtead for the brave as it digs itself out of trouble

It speaks volumes about the skittishness of the stock market over the past few days that Spirent shares could jump back up 13 per cent yesterday just on the back of the company saying trading is in line with expectations. The warning that "while we have seen indications of a pick-up in spending by our customers, we continue to be cautious as to the extent of this recovery", might suggest the exuberance was as unreasonable as the previous tumble.

It speaks volumes about the skittishness of the stock market over the past few days that Spirent shares could jump back up 13 per cent yesterday just on the back of the company saying trading is in line with expectations. The warning that "while we have seen indications of a pick-up in spending by our customers, we continue to be cautious as to the extent of this recovery", might suggest the exuberance was as unreasonable as the previous tumble.

So Spirent is a day traders' stock, up and down with the mood of the market, the hopes or fears for the economic future. Below the surface, a real company with great products, which has built market share in a truly awful market for its goods, which include testing kits to analyse the performance of new telecoms equipment or the quality of service being offered by a telecoms network.

Best of all, it has kept the research and development spending up, and is ready to emerge into a new cycle of telecoms industry spending with gadgets for a new generation of broadband, internet protocol and 3G mobile systems. The upswing is not likely to take spending to the same heady levels of the late Nineties (and telecoms operators will take longer to re-open their wallets than the equipment makers, who are starting to spend again), but Spirent's markets could be flat to 5 per cent up in 2004, compared to a decline of 20 per cent last year and 40 per cent in 2002.

Spirent looked like it might have a brush with its banks last year, when interest cover came perilously close to the permitted 2.5 times, but it was back up to 3.7 times by year-end, and the company has proven itself as a strong generator of cash, even in the worst of conditions.

And the share price? After yesterday's rise the stock trades on a racy-looking 25 times current forecasts of earnings for 2004, falling to 20 times 2005 earnings. There is scope for upgrades to those forecasts, though, as its customers' confidence returns. The company could also return to the dividend list next year. Long-term buy.

Robert Wiseman ready to deliver growth

The doorstep delivery of the daily pinta is slowly becoming a thing of the past, as more Britons buy in bulk from the supermarket or corner shop. Robert Wiseman Dairies has been milking the phenomenon, winning new contracts to supply own-label milk to the major supermarket groups.

With its rivals still delivering 1 billion litres daily to lazy householders up and down the country - equivalent to two of Wiseman's biggest dairies - the company is confident it can continue to boost its volumes (and the efficiency of its dairies) as the doorstep market continues to fade away.

Yesterday's full-year figures saw the company report record pre-tax profits of £28.9m, up 27 per cent, on sales that rose by 21 per cent. Shareholders enjoyed a matching dividend rise.

Alan Wiseman, the chairman, reckons the booming convenience store market, the new battleground for expansion-hungry supermarket chains, offers more potential for growth. But milk remains a perilous business, prone to vicious price erosion because of pressure from the very supermarkets that Robert Wiseman is so enthusiastically wooing. Other threats include yet another competition inquiry into Wiseman's monopoly in Scotland.

The shares, at a life-time high, have had a great run since this column advised hanging on to them last year. Yet valued at just 10 times earnings, the growth should continue to balance the risks. Hold.

Ashtead for the brave as it digs itself out of trouble

Any shareholders who have stuck with Ashtead over the past few years must feel punch drunk. The plant hire group rents out diggers, pumps and cranes to the construction industry from 423 depots, mainly in the US and UK. There have been countless profit warnings, with excuses ranging from the weather to the economic climate. Then last year it got worse: accounting irregularities emerged in its US business, Sunbelt, which accounts for two-thirds of turnover. Much worse: it defaulted on its debts, incurring crippling penalties.

The issue of a £130m junk bond in March earned Ashtead the support of its banks until 2007, which means the group will still be around to benefit from any upturn in the US construction market. This has been depressed, although rivals seem to have found enough business to muddle through, thanks to Federal government programmes and residential building.

Ashtead sales in the US are accelerating again, up 4 per cent in the year to April, we learnt yesterday, including a 13 per cent rise in the final three months. But all this is wiped out by the decline in the value of the dollar. In the UK, which accounts for a third of the group, competition is very tough indeed, and this division (which trades as A-Plant) is still loss-making. The company has won a stay of execution but it is not out of jail yet. The shares, at 27.5p, are only for the brave.

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