The Investment Column: Regus has room to profit from uncertain times

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The Independent Online

Our view: buy

Share price: 133.5p

The past five years have seen a spectacular recovery in the share price of Regus, the managed office and business support services group. Punters could have picked up the shares for 5p back in September 2003, and anyone lucky enough to have done so is now sitting on a profit of something in the region of 2,500 per cent – a stellar return by any standard.

Judging by yesterday's results the company is in excellent health. First-half pre-tax profits rose by 71.8 per cent to £53.6m on the back of a 36 per cent jump in revenue to £411.5m, boosted by 61 new centres opened in the first half, of which 17 came about through acquisitions.

Regus provides fully staffed and operational temporary offices, meeting and conferencing facilities. It has grown into a global operator in the past five years, and is devoting an increasing amount of its development to emerging markets. Its largest Asian presence is in China.

In uncertain economic times, temporary and short-term office space should remain attractive. In spite of the glut of new office space in most major economic centres, Regus remains in a strong position.

Management has sorted the company out and the longer-term outlook remains strong, while the uncertainty over the US outlook should be offset by the growth in emerging markets. The shares trade on an undemanding 14.9 times forecast 2008 earnings and, provided the US economy does not go into freefall, there should be plenty of upside left in the stock.


Our view: Buy

Share price: 70.5p

Lavendon isn't a company that many readers will have come across, unless they happen to work on hydraulic platforms. The company rents the sort of platforms you see workers maintaining cables on, referred to as powered access, and if yesterday's interim numbers are any indicator demand is going through the roof.

Pre-tax profit for the first half was up to £8.3m, a sevenfold increase on the previous year, backed by a 46 per cent jump in revenue to £83.3m. Earnings per share rocketed 675 per cent to 15.42p, all of which was followed up with a very bullish outlook statement on the rest of the current year.

Demand has been boosted thanks to European health and safety regulations, which put the emphasis on the employer to provide the safest possible means of working at height. The equipment is rented by construction companies, facilities and utility management and media companies, and Lavendon is by some distance Europe's largest player, with a fleet of 18,000 units. Lavendon operates in the UK, Germany and the Gulf states, with a smaller presence in France and Spain.

With the construction industry in full swing across much of Western Europe and the Middle East, and given that Lavendon has no exposure to the US market, the shares have been in strong demand, and have rallied more than 600 per cent in the past 30 months. There has been considerable consolidation in the industry across Europe, but it remains highly fragmented, and investors should expect to see Lavendon make more bolt-on acquisitions.

The stock is not cheap, trading on 16 times 2008 earnings forecasts, but given the bullish outlook, regulatory tailwind and strong numbers, there is a good chance of more upgrades to forecasts. Lavendon should provide a very solid platform for growth.


Our view: Risky buy

Share price: 389p

Survivors from the dotcom boom are few and far between, but SDL International is one of them. Not that it survived unscathed – the stock plumbed the depths, hitting a low of under 30p in March 2003, despite being one of the few that always made a profit.

Four years on and the company is still making a profit – £8.7m in the first half, in line with revised forecasts following a bullish pre-close trading update, on revenues of £54.5m. Much of the increase came from the contribution made by the Dutch web content manager Tridion, acquired for £47m in April.

For a relatively unsung UK technology group, SDL has an impressive array of customers, including household names such as Microsoft, Intel and Sony. That said, it is more than just a software group – SDL employs an army of freelance translators, and provides a fully integrated translation service through 50 offices in 30 countries. It provides customers with the ability to translate content with consistent terminology, as well as providing desktop technology used by the majority of the world's professional translators. Many global corporations have to translate user manuals, marketing and web content, into hundreds of local languages.

Although the outlook for the second half of the year was more mixed, with the company expecting a worse contribution from Tridion where revenue is based on contract wins, the shares still look decent value on 22.1 times forecast 2008 full- year earnings with the prospect of more upgrades.