Investment Column: Investors should hold Aggreko's power

Croda International; Hansen Transmissions

Our view: Hold

Share price: 1,592p (-70p)

Any investor connected up to Aggreko, the emergency power group, over the past two years would be positively glowing. The shares have more than quadrupled since October 2008, despite taking a hit following profit-taking by investors yesterday.

Aggreko, which supplies generators to industries in more than 100 countries, reported pre-tax profits up by 18.9 per cent to £127.1m for the six months to 30 June. New contracts sent group revenues surging 17 per cent to £583.6m. The results were ahead of expectations, and analysts upgraded full-year profit forecasts by £10m.

While Aggreko supports sporting events such as the Vancouver Winter Olympics and the Fifa World Cup, the real engine rooms are fast-growing emerging markets, such as Russia and India. It delivered record orders in international power projects in the half year, notably in Asia and Central and South America. Trading profit at its international local business jumped by 86 per cent to £23.9m, while its much bigger international power projects business, excluding the provision of fuel, grew by 12.4 per cent to £117.1m. In mature markets, profits actually slipped in Europe by 1.3 per cent, but grew strongly by 38 per cent in North America, where Aggreko supported the Gulf of Mexico clean-up.

Throw into the mix a whopping 50 per cent uplift in its dividend per share to 6.55p and Aggreko would seem a magnet for investors. However, we believe its shares – which trade on a price-earnings ratio of above 20 – are now a bit too hot to handle. Plug back into Aggreko when it cools down, but hold for now.

Croda International

Our view: Buy

Share price: 1,470p (-45p)

The chemicals company Croda International supplies materials for a range of industries from skin care to pesticides, from car maintenance, to textiles, printing inks and technology for the oil and gas industries.

The group was launched in Yorkshire in 1925 when it was set up to make lanolin, a rust preventative. It expanded during the Second World War, making camouflage creams, insect repellent and gun cleaning oils.

These days the company is even more diversified and is doing a roaring trade. It avoided the worst of the credit crunch, and in the nine months to the end of September lifted profits 87 per cent. The personal care business continues to be strong: as the chief executive, Mike Humphrey, said, "Vanity and ageing don't go away."

The third quarter tends to be weaker, and volume growth has weakened over that posted in the first and second quarter. Yet the comparatives were also tougher and the fourth quarter is expected to bounce back strongly. It has also been able to deal with the rising prices of its raw materials, because of what Mr Humphrey called "very good pricing power," which means those rises are usually passed on to customers.

The dividend is strong, raised 50 per cent at the interims to 9.75p, and the stock trades on an estimated price of 13.5 times full-year 2011 earnings, which looks justified. The shares retreated off yesterday's announcement, which certainly looks like a buying opportunity.

Hansen Transmissions

Our view: Sell

Share price: 45p (+3.5p)

If it is hard to predict when the wind blows, it is equally hard to predict when the wind turbine market will recover, as Hansen Transmissions is finding out to its cost.

The Belgium-based wind turbine gearbox maker warned last week that it is cutting is revenue forecasts for the year, knocking 14.5 per cent off its share price. After such a torrid response, Hansen bounced yesterday despite first-half results showing revenues down by 16.5 per cent year on year and confirming expectations of a 10 per cent fall in revenues over the year as a whole.

The problem for Hansen is that demand remains muted. While the wind sectors in China and India are showing signs of improvement, the financial crisis has left those in the US and Europe "consistently weak for the last two years," the company says. When they will recover is not yet clear.

Hansen's shares have lost the best part of 70 per cent over the past 12 months. Even the €75m (£65m) sale of its industrial gearbox unit to Japan's Sumitomo Heavy Industries will not help in the short term. Sell.

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