Pumped up Weir rides wave of export orders

Brixton looks fully priced; Exotic Ofex is an interesting beast
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The Independent Online

It does not seem the best day to be talking up the prospects of lucrative export contracts for the rebuilding of Iraq. After the bombing of the United Nations office in Baghdad it is clearer than ever that the reconstruction of the country's oil industry and water infrastructure will take longer and suffer more setbacks than many in the financial community had been hoping.

That said, Weir Group, the Glasgow-based manufacturer of pumps and valves was yesterday still optimistic that its links with US contractors including Bechtel, together with the lobbying of the UK government, will land it some useful business in the country. Orders for new products would enable Weir to raise production at its factories across the world and improve the group's profitability.

Weir's chief executive, Mark Selway, was also talking up the prospect of new orders in the US power generation market, which woke up to the need for new investment after last week's blackouts.

Then there are positive omens from the US water industry, where Weir reports improved interest in its products for mooted new infrastructure projects. Whether cash strapped municipal authorities really will turn on the investment taps remains doubtful, perhaps, but there is also the global economy as a whole, which could presage a strong upswing in Weir's sales to industry.

So, quite a lot to hope for, which is just as well, because the shares stand at a year high and already reflect a lot of hope. It is true that Mr Selway has made a good fist of improving profitability, even without increased orders. Having disposed of some businesses, Weir's pre-tax profit in the first half of 2003 was down 9 per cent to £20.1m but, crucially, operating profits in the remaining business were up by 13 per cent. Cash generation was disappointing because of a dip in orders at Techna, the division involved in the design and project management of giant engineering schemes, particularly in the defence and power industries, but orders here are back on the up.

Weir's shares trade on 13 times current year earnings and yield 5 per cent. Fair value.

Brixton looks fully priced

Tim Wheeler, the chief executive of property group Brixton, called the turn in the commercial property market yesterday, saying a rise and lettings activity indicated that the market was over the worst of the slowdown.

The last two or three months have shown "real signs of stirring", he said, with the number of inquiries in the six months to June up 17 per cent on the same period last year.

This good news, combined with better than expected half year profits of £21.8m, provided a boost to Brixton shares, which rose another 7p to 237.5p. Vacancy levels at the end of June were down to 7.9 per cent of the portfolio, compared with 9.1 per cent in June. This is well below forecast levels. Brixton is so confident it is even reactivating its development programme, mothballed more than a year ago.

So are the shares a raging buy? Brixton is certainly an attractive prospect. It has repositioned itself in the last couple of years, selling overseas interests and UK retail property to concentrate on industrial warehouse property, principally around Heathrow airport and in the Thames Valley corridor.

In this sense, the shares are a big play on the development of a fifth terminal at Heathrow which would provide a massive boost to cargo shipments. The backdrop therefore looks promising and the shares have already enjoyed a good run, rising from a low of 188.5p in March. They have even surged through a revised 230p price target set by Morgan Stanley, its own financial adviser, only a fortnight ago.

The shares trade at a 25 per cent discount to the net asset value of 318p per share, down 2 per cent on last year.

Brixton looks a decent play on a commercial property revival but much of this is already reflected in the price. Hold.

Exotic Ofex is an interesting beast

The Ofex market is something of a zoo for exotic investment opportunities - football clubs, family-dominated companies and speculative ventures of various degrees of spiviness. Ofex plc, the loss-making company that runs the market, is recently floated on its rival AIM and is something of a wild investment itself.

No brokers have put their necks on the line to make forecasts for Ofex's likely future profitability, and the company as presently constituted does not have a long track record. Ofex plc is not a share for widows and orphans, then, but it feels instinctively the right time for gamblers to take a punt. They could be getting in right at the bottom of the market. Ofex's first results showed a £273,000 loss in the six months to 30 June and revealed the number of companies whose shares are traded on Ofex - from whom Ofex plc gets an annual fee - actually fell. There were only eight new listings, compared to 14 in the first half of 2002.

But inquiries from potential new entrants are running at one a day now, compared to one a week at the start of the year. The current strength of small-cap shares should encourage new listings, as should the arrival of Teather & Greenwood as a second potential market maker - after Ofex's former owner, JP Jenkins. Meanwhile, Ofex is milking the confusion over new European listing rules, which may jack up the costs of floating on AIM. The prospects are good.

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