Investment Column: Aggreko will continue to shine brightly

PartyGaming; Intandem
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The Independent Online

Our view: Hold

Share price: 1040p (-2p)

All the stars are seemingly aligned for the emergency power group Aggreko. Not only has the company recently made it into the top flight, having been promoted to the FTSE 100 last December, its full-year numbers, published yesterday, show that the group is going from strength to highly charged strength.

Underlying pre-tax profits jumped to £246.5m from £191.6m last year, which was ahead of expectations, while the group gained kudos from helping to power the recent winter Olympics in Vancouver. It will also be responsible for making sure the lights stay on at the forthcoming football World Cup in South Africa. So at least there will be one English team in the final.

While these deals capture headlines, however, it is the broader demand from the emerging markets that is energising the group. Rupert Soames, chief executive, argues that as emerging economies grow, domestic infrastructure will not be able to cope with the extra demand: judging by the company's performance, it is rather difficult to disagree with him.

Investors have had field day with Aggreko in the last 12 months. Not only was there an uplift in the shares when the stock reached the FTSE 100, a string of positive results and statements has sent the shares up by an eye-watering 198 per cent – good job we backed the shares when we looked at Aggreko last April.

We are not going to buy today, however. While we think that Aggreko is a great punt, we would be tempted to take a breather and wait for a little bit of softening. The shares eased 0.19 per cent yesterday, despite the good results and positive noises on the future. They already trade on a fairly spicy 2010 multiple of 16.3 times forecast earnings, according to analysts at Collins Stewart, and while the dividend was increased yesterday, there are still more attractive yields available elsewhere (Aggreko's yield is not much more than 1 per cent). The experts also express concerns that the group may have benefited disproportionately from the relatively weak pound.

We would be happy to recommend Aggreko as a core part of anyone's portfolio, but wait for the shares to soften a little before buying more. Hold.


Our view: Avoid

Share price: 310.1p (+7.1p)

PartyGaming is a remarkably resilient beast given all the legal troubles it has been through and the way it has survived, and even thrived, after being kicked out of the world's biggest poker market – the US, where internet gaming has been left to privately owned operations whose offshore investors feel more comfortable with flouting the country's internet gaming ban than Party's respectable institutional shareholders. Yesterday the company reported trading in line with forecasts, with flat pre-tax profits of $84.6m (from continuing operations), although a settlement with the US authorities over its former US business pushed Party into loss post tax.

Getting into bingo has proved a good idea (the business is storming) and weakness in poker appears to have stabilised. Still, at 16 times Daniel Stewart's forecast 2010 earnings the shares are not cheap, and at 24 times the more sceptical Collins Stewart estimates they look very pricey. M&A speculation has pushed the stock up in recent weeks, together with hopes of favourable regulatory change in Europe. We're not totally negative on Party, but for us there's too much uncertainty to justify the shares' rating. Avoid for now.


Our view: Buy

Share price: 3p (+0.62p)

Butch Cassidy scriptwriter William Goldman has an old adage about film-making that in Hollywood "nobody knows anything" about whether a movie will be a hit. For the AIM-listed producer Intandem Films, it doesn't really matter. A blockbuster is always nice, but it isn't crucial to revenues – the group sorts out financing for projects looking to get off the ground as well as international sales and distribution deals further down the line. The group hedges risk – more than covering its costs with pre-sales while picking up extra bonus commissions on hits.

Intandem failed to deliver a film in the first half, and revenues suffered accordingly. This should change by the end of the year, with potentially five ready, including Blown starring Samuel L Jackson. The group's numbers are moving in the right direction – it slashed pre-tax losses 71 per cent to £179,000 in the first half, and has wiped out its £6m debt pile.

Gary Smith, chief executive, is confident that the current slate will see revenues rolling through the coming year, and at a price of 12 times next year's earnings – according to Growth Equities & Company Research – this looks worth a punt. Buy.