Investment Column: Aggreko has what it takes to power ahead

Bwin.party Digital Entertainment; Cape

Our view: Buy

Share price: 1,939p (+74p)

We have been fans of Aggreko for some time now. Our confidence has been down to the fact that it is well placed to meet the global demand for power. The temporary power provider boasts both the know-how and the reach to meet the needs of its customers, whether it be during crises that knock out conventional supplies, or during big sporting events.

It's success in this area was evident in its update last week. The group – the world's biggest provider of temporary power – posted higher revenues as it saw strong demand from its international power projects division. The momentum means that company is well placed to "deliver a strong second half," as the chief executive Rupert Soames put it.

All this despite the fact that the first half of 2010 was pretty strong, with the company generating nearly £50m in revenues from one-off sporting events. Performing well in the face of such comparatives speaks both of the strength of the international market for temporary power and Aggreko's nous for exploiting it.

The one fly in the ointment, however, is that the Aggreko story is far from secret. The market is very much alive to the growth potential, something that is reflected in the share price, which is up more than 100 per cent since the beginning of last year. And while the stock market has been struggling in recent months, Aggreko remains some 30 per cent ahead of where it began 2011.

You could, in other words, argue that it would be prudent to bank profits. We would disagree. Aggreko may find it harder to notch up share price gains at the same pace, but it will see more gains, in our view.

And although its shares are not cheap, at around 21 times forward earnings for this year, falling to 19 times on the estimates for next year, we think it is still affordable.

Bwin.party Digital Entertainment

Our view: Avoid

Share price: 125.3p (+15.3p)

Investors certainly appear to think that the awkwardly named bwin.party has something to celebrate despite the world's biggest online-gaming group unveiling a 21 per cent fall in earnings before various one-offs, depreciation, amortisation and tax, to €82m (£73m).

Despite the numbers (overall revenues also slipped by 3 per cent to €398m), the shares shot up yesterday. The figures, which admittedly were in line with the expectations in the City, were hit by the closing of the company's French casino, intense competition and tough comparatives with last year, when the World Cup kicked off a gambling binge.

The latter didn't seem to bother Paddy Power much, however, and we remain sceptical about online operations like this one. Regulatory and taxation nets are tightening around the world which adds to their risk profile (Germany could still produce some nasty surprises).

What's more, competition remains intense while brand loyalty is not strong. We also don't like the fact that bwin.party is run by two chief executives, frequently a recipe for disaster.

A valuation of about 8 times forecast 2011 earnings doesn't really tempt either. While the company has paid a maiden dividend, plans a share buyback, and boosted its target for savings from the merger which created the company to €65m from €55m by 2013, our pick of the sector remains William Hill, which trades on similar multiples but is a much, much better bet, in our view.

Cape

Our view: Buy

Share price: 480p (-6.75p)

After eight years in the relative wilderness that is Aim, Cape re-entered the main list in June and now the energy services group expects to be promoted to the FTSE 250 in the next reshuffle of the indices later this month.

The company, which used to produce asbestos, certainly returns in better shape, having tackled its rather large debt pile. Last September it announced its first dividend payment for a decade, and its share price has gained over 80 per cent in the past year.

Yesterday's first-half figures did see a small dip in its adjusted pre-tax profits, but Cape was confident on its prospects for the rest of the year.

Analysts reckon that its bullishness is well-founded, while an increase in the number of energy companies investing in LNG means it looks well set for the future. Investors hoping to take advantage, therefore, might be advised to get involved before the move up to the mid-cap index.

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