Investment Column: Look for tastier water than Northumbrian

Opsec Security; Hamworthy

Our view: Take Profits

Share price: 284.1p (+5.7p)

The water industry is finally getting back to normal after months of flux as the regulator, Ofwat, set the prices that the industry can charge for the next four years. Notwithstanding the fact that the final determination fixed prices a lot lower than many in the industry would have liked, the outlook for much of the sector is positive.

Northumbrian Water's annual results, which yesterday beat analysts forecasts, followed similarly strong performances from Severn Trent and Pennon last week. At Northumbrian, revenue was up just 1.5 per cent at £705m but profits soared to £123m from a £12m loss last year.

The most immediate good news for investors is the dividend, boosted by 3.5 per cent to 13.24p per share. And the impact from the recession also looks to be settling down.

Heidi Mottram, the chief executive of Northumbrian Water, said: "The group is continuing to produce decent results. Income increased slightly despite the economic downturn; business closures among our customers appear to have stabilised."

There are also longer-term upsides. Yesterday's results put the company in a good position moving into the next regulatory period, from 2011 to 2015. Northumbrian has bought all of its electricity up to March 2015, removing the risk of price fluctuations which have taken operating expenditure way above targets in the past. And it has funds in place to meet all operational requirements to the end of 2011, with cash and short-term deposits standing at £189m at the end of March.

All that said, while analysts at Royal Bank of Scotland concluded earlier this year that the whole water sector looks cheap, Ambrian says Northumbrian is the most expensive stock in it – its shares gained 3 per cent in the run-up to the results. Water is a great a sector to be in but if you're in Northumbrian, take profits and switch into alternatives that offer better value, such as United Utilities or Severn Trent.

Opsec Security

Our view: Speculative buy

Share price: 24.5p (+1.5p)

The past year has been tough for Opsec Security, a supplier of anti-counterfeiting technology and services, which had to slash costs, cut staff and consolidate two US manufacturing plants into one.

Its performance in the six months to 31 March was "severely affected" by the financial crisis as customers became less willing order its products, which include security tags used in shops and anti-counterfeiting technology embedded in laminated passports. However, sales improved substantially in the second half of the year and the uptick in trading has continued since the year-end. This helped Opsec to deliver adjusted annual operating profits of £2.5m, ahead of expectations. It also positioned itself for growth by completing a refinancing with Investcorp Technology Partners that raised £15.7m, including a £7m preferred shares placing and £9m of debt financing. The shares have more than doubled from a 12-month low of 9.50p last June and trade on 13.5 times 2011 earnings. That's edging towards pricey but there's enough here for speculative buyers to tuck a few away.


Our view: Buy

Share price: 287p (+7p)

The marine engineering group Hamworthy posted better-than-forecast full-year results but trading conditions remain challenging. The demand for original equipment from the new shipbuilding market, for instance, remains sluggish, with the company saying it is too early to tell when conditions will revert to more normal levels. On a more positive note, Hamworthy has managed to maintain margins in what is a tough market. Its balance sheet is also strong, indicating that it is a well-run company.

That said, there are grounds to be cautious. The reason is the oil and gas sector (about 80 per cent of activity is related to the production and transportation of oil and gas, according to Evolution).

Hamworthy, based in Poole, Dorset, says the fundamentals driving an increase in demand from the upstream oil and gas sector "are strong" and should lead a recovery in that market, "although the timing of any upturn remains difficult to predict". We worry that the fallout from the BP oil spill in the Gulf of Mexico could put off the recovery further than seemed likely in the recent past.

And yet we would risk buying. Hamworthy trades on 4.1 times enterprise value to earnings before interest tax, depreciation and amortisation, leaving the stock at a 30 per cent discount to the sector, according to Numis. Given that valuation gap, we think that, even if the recovery is delayed, the market will likely treat Hamworthy better than some of its peers. Buy.

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and to give free concert as part of the Global Poverty Project

Mary J Blige and to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...