Investment Column: International reach keeps WSP on target

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The Independent Online


Our view: Hold

Share price: 294.5p (+6p)

Finance director Malcolm Paul is at pains to explain why shares in the management and consultancy group WSP have fallen by more than 65 per cent in the last year. As the property market has struggled in recent months, so companies that have even the slightest connection to the sector have also toiled, he says.

What investors should really be concerned with, argues Mr Paul, is that UK property makes up just 5 per cent of WSP's overall revenue and that much of the company's work is done in the much healthier infrastructure sector, and largely abroad at that.

Indeed, property aside, the group is doing rather nicely. In a market update yesterday, WSP said that it was on target to meet yearly expectations and that some of the group's markets, particularly Sweden, are thriving. Property in the Middle East, incidentally, is doing well, says Mr Paul, who is also of the opinion that there is a bit too much "doom and gloom" about.

The analysts certainly agree as far as WSP is concerned. Those at Arbuthnot say that "WSP Group now trades at the lower end of the consultancy peer group and, being one of the most diversified international consultants, we believe this is unjustified". The group trades on a price earnings ratio of 7.3 times for this year, compared with its peer group on 10.4 times.

Being a cheap stock will certainly encourage some investors, and on paper WSP represents an opportunity. However, it is better for when we are heading out of, rather than into a recession, and for the time being there is distrust about any company that is even notionally linked to UK property. Hold.

Chloride Group

Our view: Buy

Share price: 147.25p (+15.25p)

Holders of Chloride stock got a boost yesterday as the shares closed up 11.6 per cent after the secure and emergency power company announced a first half pre-tax profit of £17.6m: an increase of 44 per cent on the same period last year.

Chloride is not alone in increasingly throwing its lot in with the emerging markets, with 41 per cent of the group's business now being done away from Western Europe, and it is clearly having its fair share of success, especially as infrastructure projects in places like India often suffer from poor power supplies. However, this does not protect the group from the worst of any recession that might be on the way. While pointing out the strength of the group's balance sheet in anticipation of a downturn, and to an order book at record levels, chief executive Tim Cobbold says that he will not be drawn into speculation about the economy.

Investors worried about the immediate future should be comforted by the analysts at Investec, who argue that the share price should hit 175p within a year. The problem for buyers looking for impressive returns is that the group, trading on a 2009 price earnings ratio of 10.3 times, comes at a rather hefty premium to its peer group. "Deservedly so," say those at Investec, who point to the company's diversity as a wholly good thing in these markets.

More and more of Chloride's work is set to be done in high growth markets, and for the time being that is the best defensive quality to have. Buy.

Tarsus Group

Our view: Hold for now

Share price: 116.5p (+5.5p)

Conferences are big business, especially in times of plenty when everyone wants to be seen at industry events. Tarsus, a group that specialises in conferences and exhibitions, issued a market update yesterday, sayingthat trading in the three months tothe end of October went as expected.

The managing director, Douglas Emslie, argues that conference spending is one of the last things to be cut, especially as a client's absence could spark speculation in an industry as to its financial health. He argues that Tarsus, which operates in 19 countries – a deliberate move to lessen exposure to the UK economy – is doing everything it can to stave off a nasty downturn.

Watchers at Investec argue that clients should buy the shares, which should hit 175p, they say. The experts argue that the schedule of events for 2009 is already looking good and that trading on a 2008 price-earnings ratio of about nine times, the share price looks good compared with Tarsus's peer group.

Tarsus is an appealing prospect for punters at the current level. Investors, however, need to be cautious about the impact of a recession on a group that depends on clients' discretionary spending, and should hold fire for the time being. Hold for now.