Investment Column: National Express still has room to travel
Friday 25 February 2011
Our view: Buy
Share price: 247p (-2.5p)
Finally, some good news for much-troubled National Express. From the doldrums of a scrapped rail franchise and sharp financial losses in 2009, the transport group posted annual results for 2010 yesterday showing a return to profit and a proposed final dividend of 6p per share.
Under the newly installed chief executive Dean Finch – who joined from Tube Lines, the London Underground public private partnership, this month – the company saw revenues boom by 22 per cent to £2.1bn, and pre-tax profits soar by 38 per cent to £161m, leaving statutory profits of £62m, compared with £53m of losses last year.
Mr Finch's turnaround strategy – which has included restructuring the National Express bus network and extending its East Anglia and C2C London commuter train franchise – has been sufficiently successful to beat analyst forecasts and see the restoration of the dividend scrapped in 2009 to mitigate the losses from collapse of its East Coast rail franchise deal.
Chairman John Devaney was suitably upbeat yesterday, praising Mr Finch for the "clarity and operational focus" he has brought to the group. "Following a turbulent 2009, we are rebuilding a high-quality business, focused on its core operations and established on a sound financial footing," Mr Devaney said
Mr Finch was equally bullish. "This is a renewed company," he said. "Our much improved financial performance provides a platform to drive further growth, continue targeted investment and restore a dividend. With a clear focus on our strategy, we are confident in the year ahead."
That said, the hard work is far from over. Douglas McNeill, an analyst at Charles Stanley Securities, said: "The failings of which the group was guilty in 2009 have been fixed in short order, and that's impressive; the challenge now is to achieve organic growth and retain the East Anglia rail franchise."
National Express has come far from the slump of 2009, and the shares have performed well. But there is still plenty of headroom and Mr Finch should inspire confidence. Buy.
Our view: Buy
Share price: 286.5p (-12.2p)
Given the frothy state of the markets, it is not unusual to find companies with share prices that have rocketed over the past couple of months as investors waded back into equities. Often, the rally is out of step with reality, running ahead of fundamentals as speculators took a punt. Bodycote is not such a company.
The engineering group's shares have done well – and deservedly so. First, trading has recovered and both revenues and profits have been rising, something that was confirmed by last night's results.
Second, the wider sector has been recovering nicely in recent months, after suffering as customers started running down stockpiles, as opposed to placing new orders, during the recession. Manufacturing activity has been picking up round the world, boding well for Bodycote's performance.
Of course, it would be foolish to overlook the uncertainties that continue to cloud the macroeconomic outlook. But, at under 13 times forward earnings, and with a prospective yield of nearly 3 per cent, that seems to be more than reflected in the stock.
Given Bodycote's efforts to cut costs during the downturn, that makes this a horse well worth backing. Buy.
Our view: Buy
Share price: 333.9p (-9.1p)
As an investment manager specialising in emerging markets, Ashmore landed in a rather sweet spot during the recession. And while there have been fears that those may be getting a bit toppy, Ashmore's interim results, released yesterday, show appetite remains strong.
In the six months to the end of December, pre-tax profits rose 14 per cent to £127.6m with revenues up 17 per cent to £173.7m. Chief executive Mark Coombs said: "Events of the last six months have continued to underline the increasing importance of the emerging markets."
The message is getting through. Ashmore's assets under management hit $46.7bn at the end of the year, $11.4bn higher than six months earlier.
Moreover, at 14.3 times forward earnings, the valuation leaves room for further gains. Buy.
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