Shares: Ocean swims out of still water
Sunday 15 December 1996
The changes he set in motion have resulted in sharply rising profits with more good news to come. The shares have doubled since, but a prospective price-to-earnings ratio of 15 times expec-ted 1997 earnings hardly does justice to a group with two world class businesses: air freight forwarding and oil services.
Ocean used to be the shipping company Ocean Transport & Trading, which began life carrying goods in the Far East for the Hong Kong-based Swire empire. The group still has substantial interests in the region which, along with Australasia and Africa, accounted for 37 per cent of the pounds 1.13bn turnover in 1995. This weighting is likely to grow and will be a key factor in Ocean's ability to increase earnings.
The Allen era at Ocean has seen the departure of half the top 50 managers, including key divisional heads and the finance director. Accounting and reporting procedures have been tightened. Expenditure on computer hardware and software to support the air freight forwarding operations is no longer capitalised but fully written off against profits. An emphasis on efficiency and profitability now permeates the group.
These changes are most evident in air freight, the largest and most exciting business. Trading as MSAS, the operation is the second largest in the world with turnover in 1995 of pounds 810m. The larger rival, Nippon Express, acts mainly for Japanese companies, whereas MSAS works for global enterprises such as Compaq, Hewlett Packard, Intel, Zeneca, Kodak, Nokia and Sony. These companies operate "lean supply" systems with minimal storage and a requirement for fast movement of items and detailed information on their progress - hence MSAS's hefty investment in information technology.
Worldwide air freight movements are forecast to grow at 6 to 7 per cent annually. Allen is meanwhile attempting to increase profit margins in the division from 1 to 3 per cent. Observers expect this to be achieved in 1997 and there should be scope for further improvement. Before the end of the decade MSAS could have a turnover of pounds 1bn-plus and profits of pounds 50m. It is not far-fetched to value the business at pounds 600magainst a current market capitalisation for the group of pounds 756m.
Next most important is OIL, the oil field supply business fleet of 100 vessels used to move drilling rigs and to supply production rigs. The search for oil offshore is booming and OIL is active in key areas like the North Sea, Africa, Brazil and South East Asia. In 1995, OIL had turnover of pounds 92m with profits of pounds 20m. Prospects look good even if the oil price declines.
The last third of group profits comes from three smaller divisions: waste disposal, tugs and contract distribution. Ocean disposes of around a fifth of London's rubbish into landfill sites via a fleet of Thames barges. Its tugs service ports like Liverpool and Milford Haven - a mature but profitable business. The contract distribution operation, McGregor Cory, is being turned to profit under new management.
Longer-term, Allen wants toextend the range of services provided to its blue chip global customers. Strong cash generation and low borrowings make acqu-isitions another option. Pre-tax profits are expected to rise from 1995's pounds 54.2m to pounds 62.5m for 1996, followed by pounds 70.2m. This should underwrite a continuing climb in the share price. Buy.
Sales of the tablet are set to fall again, say analysts
Follow the latest updates from the Monday night Premier League fixture
Met Police confirm there was a 'minor disturbance' and no-one was arrested
George Lucas criticises the major Hollywood film studios
Does Chris Grayling realise what a vague concept he is dealing with?
Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets
Concerns raised phenomenon is threatening resort's image as a family destination
I Am Bread could actually be a challenging and nuanced title
Peter Biaksangzuala died from his injuries in hospital on Sunday
- 1 Indian footballer Peter Biaksangzuala dies after injuring spine doing somersault celebration
- 2 Jack the Ripper: Scientist who claims to have identified notorious killer has 'made serious DNA error'
- 3 Drink alcohol and eat meat to improve male fertility - but cut down on coffee, studies suggest
- 4 Kentucky gang rape: 15-year-old boy left in critical condition after sexual attack by group at party
- 5 Lynda Bellingham dead: Loose Women presenter dies after battle with colon cancer
Sophia Loren: How I rejected Cary Grant and 'pulverised' Marlon Brando with my eyes
Banksy arrest hoax: Internet duped by fake report claiming that the street artist's identity has been revealed
'Russian submarine spotted' by Swedish military off coast of Stockholm
Kentucky gang rape: 15-year-old boy left in critical condition after sexual attack by group at party
Oscar Pistorius sentence: Athlete's wealth and notoriety provoke an overdue debate on South African prisons
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Sorry Judy Finnigan – Ched Evans is no less sickening than an alleyway rapist
Residents should throw a street party and mix with immigrant neighbours, councils told
Workers 'could be forced to pay £5 a week' to get benefits
Russell Brand threatened with arrest after filming outside Fox News headquarters
Amal Alamuddin calls for the return of the Elgin Marbles from Britain: 'Injustice has persisted for too long'
iJobs Money & Business
£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...
£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....
£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...
£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...