Investment Column: Braemar Shipping looks to Asia for growth
Wednesday 27 October 2010
Our view: Buy
Share price: 538p (-2p)
It was full steam ahead for Braemar Shipping Services yesterday. The group's half-year results showed revenues up by 18 per cent to £68m, pushing pre-tax profits up by 3 per cent. A secure balance sheet larded with £15m in cash and no debt also plays in the group's favour.
In part, Braemar is buoyed by the wider recovery in the shipping markets. But there is an extra lift from a robust business model that saw the shipbroking division – which generates four-fifths of revenues – turn out a 31 per cent profit increase, far outstripping volatile market improvements.
But it is not all good news. The outlook for global shipping's immediate future is patchy, with increasing supply expected to depress both freight rates and vessels values.
More important for investors is Braemar's long-term expansion strategy focusing on Asia. There are big plans, including more than 100 staff in a new office in Singapore and an operating licence issued in China.
"The importance of Asia to our business cannot be underestimated," Sir Graham Hearne, Braemar chairman, said. "Growth in Asia is expected to sustain the demand for shipping."
We have kept a "buy" on Braemar for 12 months already, and investors will have seen their stocks rise by a third. And despite predictions of more volatility to come, the shares are still attractive – with a yield of 4.8 per cent and a price-earnings ratio of 9.4 times next year's estimates, according to Gerald Khoo at Arbuthnot.
Braemar's upward trajectory will flatten off. But with opportunities in Asia to counteract short-term uncertainties, it will not be quite yet. Buy.
Our view: Buy
Share price: 18p (-0.25p)
The newly austere Government is not bad news for all public-sector suppliers. AIM-listed Lidco attributes a strong first-half and upbeat outlook to growing interest from NHStrusts in its heart monitoringequipment.
Terry O'Brien, the chief executive, says the Government's push to improve surgical care drove a 34 per cent rise in UK sales and that he expects hospitals to buy more in the second half.
Lidco has come through a sticky patch over the last 12 months. Its US distributor, Covidien, suffered disruption as it struggled to integrate acquisitions and Lidco itself was hit by falling sales. But Mr O'Brien says Covidien is now over its indigestion and that Lidco combines well with Covidien's other products in the world's biggest market.
Things are not so rosy in Europe, where belt-tightening in the south and an entrenched competitor in Germany have dampened expectations. But Mr O'Brien says the company's move into profit in the second quarter will be repeated in the second half and is sustainable.
With the British economy in need of a shift from financial services and leisure to manufacturing, Lidco is an opportunity to back a potential UK success that actually designs and makes something useful.
Reiterating last year's caveat that any AIM-listed healthcare group carries risk, Lidco remains a buy.
Our view: Hold
Share price: 109p (+1.5p)
The business software group Microgen has been on a roll recently. In August, the company completed a £6.2m share buy-back and yesterday's third-quarter figures revealed a "strong" balance sheet with £19min cash.
Over the three months to 30 September, Microgen maintained its momentum and entered into a number of licence agreements and extensions. The company also reassured the City that it remains on track to meet expectations for the year.
While the financial systems division continues to trade in line, analysts are paying increasingly attention to Microgen's Aptitude software, used for high-volume transaction processing. Investec noted yesterday that Aptitude is "winning new clients" and is developing into a "material software platform", which bodes well for the next 12 months.
But there remains the risk of a faster-than-expected slowdown in financial systems and Aptitude sales as companies tighten their belts.
The stock is also starting to look pricey and trades on a price-earnings ratio of 15.4. At best, hold.
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