Investment Column: GKN's global reach helps it to steer around the double-dip threat

Cobham; Statpro


Our view: Hold

Share price: 185.9p (-9.2p)

Given the sharp decline in confidence since we last looked at GKN, the automotive and airplane parts maker has held up remarkably well. Its third-quarter results yesterday were surprisingly good, with group sales for the three months ending 30 September up 10 per cent at £1.48bn and trading profit (before a one-off charge relating to an explosion at a plant in the US) up 13 per cent to £113m.

That's not bad for a traditionally quiet quarter, particularly given the grim economic tidings. What's more the group's view on the outlook, at least in the short term, is remarkably upbeat. There has so far been no evidence of a slowdown in its order book.

Automotive parts is the biggest of GKN's businesses (the other two being in aerospace and land services) and its exposure to the luxury market appears to be working out well – those rich enough to afford top end cars don't seem to be suffering as much as the rest of us. Orders from China, Germany and the US have remained solid.

The other businesses are performing in line, with aerospace expected to pick up soon.

What is attractive about GKN is its global reach and exposure to parts of the world that won't necessarily suffer from a European, and perhaps US, double dip downturn. It's not a safe bet but it's safer than some.

And the company's valuation is hardly stretched at 10 times this year's forecast earnings, falling to just 8 times next year with an acceptable prospective yield of 3.3 per cent rising to 4.4 per cent next year. That is well below its historic average multiple of nearly 16 times.

We said buy at 201.5p in March, having originally turned positive at 109p a year before that. The shares have slipped a bit since then but, we'd keep the faith with GKN's quality. It has continued to produce good results and is a share to back long term.

Cobham

Our view: Hold

Share price: 177.9p (+5.6p)

Cobham's claim to fame in its home country is the fact that it trains naval helicopter pilots, including one William Wales, to fly. But Britain is not really that big a deal for the defence contractor, which generates most of its revenues from the US.

Whichever side of the Atlantic you're on, however, cuts are coming. Even countries seemingly devoted to sending in the troops at the drop of a hat cannot keep giving generals and admirals every toy they might want given the black holes in their public finances.

What had the market all of a flutter yesterday was Cobham's sale of its "Analytics Solutions" business – essentially a company called Sparta it bought a few years ago – for $350m (£221m). That's better than expected and the company will book a $20m one-off gain from the deal.

The sale was forced by a change in US tender rules which now essentially prevent companies supplying equipment from advising on procurement. But unloading this business not only disposes of a potential problem for Cobham, it disposes of a problem for potential US bidders such as Raytheon or Lockheed Martin.

At just under 10 times this year's forecast earnings, falling to just over 9 times next year's, the valuation is hardly stretched, with an acceptable prospective yield of 3.8 per cent rising to 4.1 per cent

It's always risky buying a company on the basis that it might sometime be a takeover target. But while Cobham is a way below the 224.6p at which we said hold in March, it is now worth keeping faith with.

Statpro

Our view: Speculative buy

Share price: 82.5p (0p)

A note of caution from StatPro, which makes software for the fund management industry. It has warned that the recent uncertainty is going to make it "more challenging to accurately forecast levels of new business and renewal rates". All the same, the group's results so far are in line and it has seen an increase in demand for risk-based products and services.

We've been advising a hold on this company for the last couple of years. However, what makes it interesting is that while revenues are expected to be modest this year for its "StatPro Revolution", product, they could take off next year.

The "cloud-based" portfolio analysis and research service seems to apply itself well to the fund management arena. It could prove particularly attractive to smaller asset managers who can't afford the all singing, all dancing StatPro Seven product.

StatPro trades on 14 times forecast full-year earnings. This might look a little frothy but is by no means outrageous for a technology company. What's more, it falls to 11.6 times next year and there's also a dividend – which isn't all that common in AIM listed software concerns. We make StatPro a speculative buy. But a good one.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Mortgage Advisor - OTE £95,000

£40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...

SThree: Trainee Recruitment Consultant

competitive: SThree: Are you passionate about sales?Do you have a keen interes...

Recruitment Genius: Loan Adviser - OTE £30,000

£17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Day In a Page

Isis in Syria: Influential tribal leaders hold secret talks with Western powers and Gulf states over possibility of mobilising against militants

Tribal gathering

Influential clans in Syria have held secret talks with Western powers and Gulf states over the possibility of mobilising against Isis. But they are determined not to be pitted against each other
Gaza, a year on from Operation Protective Edge: A growing population and a compromised and depleted aquifer leaves water in scarce supply for Palestinians

Gaza, a year on from Operation Protective Edge

A growing population and a compromised and depleted aquifer leaves water in scarce supply for Palestinians
Dozens of politicians, bureaucrats and businessmen linked to Indian bribery scandal die mysteriously

Illnesses, car crashes and suicides

Dozens of politicians, bureaucrats and businessmen linked to Indian bribery scandal die mysteriously
Srebrenica 20 years after the genocide: Why the survivors need closure

Bosnia's genocide, 20 years on

No-one is admitting where the bodies are buried - literally and metaphorically
How Comic-Con can make or break a movie: From Batman vs Superman to Star Wars: Episode VII

Power of the geek Gods

Each year at Comic-Con in San Diego, Hollywood bosses nervously present blockbusters to the hallowed crowd. It can make or break a movie
What do strawberries and cream have to do with tennis?

Perfect match

What do strawberries and cream have to do with tennis?
10 best trays

Get carried away with 10 best trays

Serve with ceremony on a tray chic carrier
Wimbledon 2015: Team Murray firing on all cylinders for SW19 title assault

Team Murray firing on all cylinders for title assault

Coaches Amélie Mauresmo and Jonas Bjorkman aiming to make Scot Wimbledon champion again
Wimbledon 2015: Nick Bollettieri - Vasek Pospisil must ignore tiredness and tell himself: I'm in the quarter-final, baby!

Nick Bollettieri's Wimbledon Files

Vasek Pospisil must ignore tiredness and tell himself: I'm in the quarter-final, baby!
Ashes 2015: Angus Fraser's top 10 moments from previous series'

Angus Fraser's top 10 Ashes moments

He played in five series against Australia and covered more as a newspaper correspondent. From Waugh to Warne and Hick to Headley, here are his highlights
Greece debt crisis: EU 'family' needs to forgive rather than punish an impoverished state

EU 'family' needs to forgive rather than punish an impoverished state

An outbreak of malaria in Greece four years ago helps us understand the crisis, says Robert Fisk
Gaza, a year on from Operation Protective Edge: The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas

Gaza, a year on from Operation Protective Edge

The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas
How to survive electrical storms: What are the chances of being hit by lightning?

Heavy weather

What are the chances of being hit by lightning?
World Bodypainting Festival 2015: Bizarre and brilliant photos celebrate 'the body as art'

World Bodypainting Festival 2015

Bizarre and brilliant photos celebrate 'the body as art'
alt-j: A private jet, a Mercury Prize and Latitude headliners

Don't call us nerds

Craig Mclean meets alt-j - the math-folk act who are flying high