Investment Column: Jarvis

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IT HAS been a cruel time for investors in Jarvis, the railway maintenance group. At the start of 1998 shareholders were riding on the back of one of the UK's great growth businesses as railway privatisation yielded lucrative contracts for the new breed of maintenance companies. At one point the shares hit 787p. Since then the stock has been well and truly shunted into the sidings, and the shares fell another 32.75p to 270p yesterday after a 45 per cent drop in first-half profits to pounds 11m.

The reason was delays in maintenance renewal work as increased passenger traffic on the railways made it hard for the operators to close tracks. But given that the rise in traffic seems to be a long-term trend rather than a blip, what is Jarvis doing about it?

First, it has taken delivery of a new pounds 16m machine that can repair tracks four times quicker than traditional equipment. The only drawback is that the machine can work only on very long lines such as the West Coast Main Line - it is three quarters of a mile long.

Second, Jarvis expects to bid for other big contracts such as the East Coast Main Line. A win here would help the group considerably, since it has high fixed overheads. And Jarvis is looking to boost its other divisions to make it less reliant on rail work which still accounts for nearly 40 per cent of turnover.

All this should be underwritten by a huge increase in Railtrack's infrastructure spending, which has recently been raised to pounds 35bn over the next 10 years. Meanwhile, Jarvis hopes to develop its Streamline roads business, bought for pounds 194m last year. It also sees scope to boost its capital projects division, which builds and maintains schools.

This has the potential to rescue Jarvis's damaged stock market credibility. On Peel Hunt's full-year profit forecast of pounds 48m the shares trade on a forward p/e multiple of less than 10.

There is no rush to buy, but Jarvis could be worth climbing aboard next spring.