The Investment Column: Buy before the boat comes in at Forth Ports

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The Independent Online

Bid hopes have swollen valuations of port operators. Of course there is good reason for all the talk of consolidation in the sector. In the past six months, both P&O and PD Ports have been swallowed by foreign buyers.

Many in the City believe that Forth Ports could be next. However, even without a bid the company looks to be a good bet.

Its annual results, posted yesterday, were sparkling. Forth, which operates seven commercial ports in the UK, boasted of an 8 per cent rise in operating profits to £63m and an 8 per cent jump in its dividend to 43p per share thanks to a particularly strong performance by its Scottish sites.

The management say there is plenty more growth to come. It is looking at ways to increase capacity at its existing sites - a new cruise liner facility at Leith is one possibility.

Forth also has an extensive land bank situated 2 miles outside Edinburgh. The company plans a major development of the waterfront site which will be the biggest expansion of the Scottish capital for 200 years. At present the property is worth £285m but once building has been completed it will be worth a lot more. Especially if Forth uses a Real Estate Investment Trust structure for the development. This will allow it to shelter future earnings and dividends from tax further enhancing its value.

The fact that Forth has so little debt on its balance sheet makes it an attractive prospect for both private equity and trade players. Analysts suggest that a bid would have to be pitched at over 2,000p if it is to be successful.

Yesterday the stock closed at 1,761p, down 14p. If an offer does not emerge there is plenty of scope for a significant return of cash to shareholders. Arbuthnot Securities calculates that Forth could return up to £360m to investors by gearing up its balance sheet.

With or without a bid, the shares are a buy.

Ceres Power

Ceres Power shares have already shot up over the last few months but, if the company's story is to be believed, they have a lot further to go.

Key to the company's future is its Combined Heat and Power (CHP) fuel cell. If it becomes a mass market product, Ceres should turn into a billion pound-plus business. The fuel cell, to be fitted into consumers' homes, turns natural gas into heat and electricity.

The electricity produced in the process is actually a by-product and is therefore free. This makes it an attractive consumer proposition. It should not cost much more than a traditional boiler, making the Ceres gizmo a "no-brainer" in the words of its chief executive Peter Bance. Yesterday he announced that British Gas would take the product, turning Ceres from a company with great technology to the beginnings of a business.

But this is still at the trial stage, albeit trials with real consumers in real homes. Mr Bance is not very open about when the CHP device may be available as a mass market product. Providing there are no technical glitches though, this could be a fantastic story. Hold on for more gains.

IQE

Back in August this column highlighted the turnaround under way at IQE, the Cardiff-based maker of silicon wafers that microchips are made of. Annual results from the company yesterday showed that the recovery is very much on track.

For the year just gone, sales soared 36 per cent to £20m, losses halved to £4.1m and the company boasted that it is firmly on the way to profitability. IQE's markets continued to strengthen.

Demand for the components it makes, which go inside mobile phones and wireless internet networks, is particularly strong. On the cost side, major reforms mean that half of any rise in revenues goes straight to the profit line.

Strangely, IQE's shares have barely risen since last summer. Back then they traded at 9p. Yesterday they ticked 0.25p lower to 10p. Sooner or later the market will come to appreciate the radical reforms at the company and its stock will motor. Investors should buy in before then.

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