Investment Column: Aggreko has some powerful attractions
Tuesday 05 April 2011
Our view: buy
Share price: 1,678p (+84p)
The earthquake and tsunami in Japan were so horrific it feels wrong even to recognise that there may be beneficiaries. But as life goes on, and the recovery swings into action, beneficiaries there will be.
One such is Aggreko. The temporary power provider's shares rallied yesterday as the market welcomed the news that the company is to supply power to Japan to make up for some of the shortfall from the nuclear plants crippled by the disaster.
Under the deal with the Tokyo Electric Power Company (Tepco) – which faces criticism over radiation leakage from the worst-hit nuclear facility at Fukushima Daiichi – Aggreko will install gas and diesel-fired power plants in the Tokyo Bay area to supply 200 megawatts of power.
"Within a few days of the disaster, Aggreko entered into discussions with Tepco to bring additional power to the grid," Rupert Soames, the Aggreko chief executive, said yesterday. "Aggreko is pleased it is able to be of assistance to the country at this very difficult time."
The group is already on a roll. Its shares have rocketed by more than a third over the past 12 months. And Aggreko's Japanese contract win comes hot on the heels of full-year financial results showing revenues up by 17 per cent and profits up a quarter – funding a 50 per cent dividend rise and an extra £150m return of capital.
The only slight drag is that 2010 saw a whopping £87m boost from power supply contracts for no less than three major sporting events, the World Cup, the Winter Olympics and the Asian Games, which will make the comparators tougher this year. But leaving that aside, Aggreko still expects similar trading profits throughout 2011. Moreover, the London Olympics power supply contract kicks in next year.
To be sure, there have been questions from analysts about the impact from the upheavals in the Middle East. But with so many growth opportunities, Aggreko still has plenty of potential headroom.
Our view: hold
Share price: 790p (-41p)
The last time we looked at Cranswick, the food producer had impressed us enough to merit a positive view. Yesterday, it issued an update on the final quarter of its financial year, reporting higher volumes, but slower revenue growth. The key talking point, in our view, was the cautious outlook statement, which sent the shares lower. Cranswick, which supplies major supermarkets, warned that, while it expected the performance in the year to March to be broadly in line with the board's hopes, the picture for the 12 months to next March suggested that the period may prove "more demanding than usual".
This should not be surprising as the UK consumer environment remains far from inspiring. Moreover, Cranswick trades on undemanding multiples of under 12 times forward earnings, according to Panmure Gordon.
The broker did, however, revise its view in light of the outlook. We are inclined to agree. This is a good company with an affordable stock, but we think investors should remain mindful of the wider economic picture.
Our view: hold
Share price: 51.25p (+0.5p)
If you took a straw poll of YouGov's management, they would probably say they were looking to the future with some confidence, especially after yesterday's solid first-half results, showing a 27 per cent rise in revenues.
In particular, the group's plan to target the US looks to have been vindicated. With strong organic growth, and several acquisitions, it is now the company's largest region. Yesterday, YouGov also unveiled the takeover of Definitive Insights, which will bring market research strength on the US West Coast. In the UK, revenues rose 20 per cent in the first half, while Scandinavia was up 12 per cent. The company was also helped by a lower than expected tax charge.
The real problem area for YouGov has been Germany. It looks like it needs more time and, crucially, more money to resolve the issues. Despite the businesses remaining profitable, revenues fell 12 per cent. The company will hope the imminent announcement of a new chief executive will mark a turning point. That, and a pretty full valuation of 17 times forward earnings, means that we would hold back from buying just yet.
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