Investment Column: Dark clouds are on the horizon for Telford

Stobart Group; Clyde Process Solutions

Our view: Sell

Share price: 77.5p (-2.5p)

When we last looked at Telford Homes, almost exactly a year ago, the Conservative-led Coalition was but a glimmer in political pundits' eyes and the horrors of George Osborne's axe-wielding little more than a bogey-man in public-sector nightmares. How different the world looks now.

Yesterday's half-year trading update from Telford Homes, the residential building company with a focus on regeneration projects in east London, puts a positive gloss on proceedings. The group's 206 home sales since April are in line with expectations, as are the 133 open-market completions in the first half of the year. But Telford acknowledges both the impact of recession in pushing down profits and the risks ahead, and its board remains cautious about the outlook.

After hitting a high of 118p in late April, Telford's stock has already lost nearly a quarter of its value since it warned that it expected profits to drop over the coming two years. Notwithstanding steady trading in east London, an ongoing lift from the 2012 Olympics and Britain's long-term need for new housing, Mr Osborne's axe cannot be overlooked.

We felt the company would be a good long-term play when we said buy the shares at 96p in October. But the outlook has deteriorated markedly. Only investors happy to wait at least two years before getting a return should stick with the stock. Others should cut their losses.

Stobart Group

Our view: Hold

Share price: 143p (-13.5p)

Eddie Stobart is an evocative brand; even if that evocation is generally one of being stuck on a motorway, gazing at the back of one of its trucks as it manoeuvres ambitiously into the overtaking lane. It seems as if those lorries will continue to rumble on with impunity after its parent company, Stobart Group, beat analysts' expectations yesterday with a rise in first-half revenues. They rose 11.7 per cent to £243.7m, while profits before tax grew by almost a quarter to £15.4m. The statement pointed to a particularly strong performance from the Eddie Stobart division, which covers transport and warehouses, where earnings, after fleet financing costs, were up 37 per cent. It has won new contracts with Tesco and AG Barr, among others, and has seen good organic growth. Performance also improved at its ports and aviation business.

The one division that has struggled is rail, where revenues dropped by a quarter and faces a severe drop in the civil engineering unit. This, and the group's outlook, hit the shares. The chief executive, Andrew Tinkler, said full-year numbers for 2011 would be towards the bottom of the market range because of reduced spending by Network Rail and other spending review-related impacts.

On 17 times next year's estimated earnings, the shares are hardly cheap but there is mileage in holding.

Clyde Process Solutions

Our view: Buy

Share price: 55p (+1.5p)

With a silly name like Clyde Process Solutions, you would think this company made its living from software or technology, where such titles are commonplace. Not so. Clyde is, in fact, an engineering business. It is also, if one looks beyond the name, an interesting investment story.

Yesterday, the AIM-listed Clyde cheered investors with news of a £1.2m contract with a major Chinese steel company. Its subsidiary CPS Asia designed and installed the injection system in one of the world's largest blast furnaces for the customer last year. The new contract will see it providing a coal-injection system.

The ability to win repeat business like this is significant at a time when orders are generally picking up. And the shares are not pricey, trading on about eight times forecast earnings for the year to February 2011, while yielding just above 1 per cent.

Resilient through the downturn, with quite high levels of debt reduction, we think CPS is worth investing in and could yet yield to a bid (rivals have attracted fancy multiples). Buy.