The Investment Column: Flying solo helps BBA Aviation to reach clearer skies

Our view: Buy

Share price: 234.75p

The aviation industry has been, well, flying in the past year or so, buoyed by the launch of major new aircraft from industry giants Boeing and Airbus as well as robust trading at traditional and budget airlines alike. Things are so good even United Airlines is back in the black. Business looks to be in good shape elsewhere in the industry, and yesterday's first-half numbers from BBA Aviation brought sector investors yet more comfort.

BBA has been around for a long while but yesterday's numbers were debut figures reflecting the demerger of Fiberweb back in December. BBA Aviation is now a much more focused group, providing a range of services to private, commercial and military customers.

The company does about 90 per cent of its business in the US, so for every cent the dollar drops full-year profits take a £350,000 hit. Even so, growth was impressive with underlying operating profits up 6 percentage points to £53.2m on relatively flat revenues of £486.7m, although at constant exchange rates revenues were up 9 per cent. Pre-tax profits for the first half rose by more than 71 percentage points to £61.2m, but that number was distorted by the sale of Oxford airport, resulting in a one-off gain of £18.8m.

BBA operates two main divisions, flight support and aftermarket services and systems. Flight support includes the Signature division, providing private jet operators with refuelling, cargo and ground handling capabilities on top of more general refuelling and ground handling for commercial airlines. Aftermarket services and systems includes engine repair and maintenance contracts, mainly for smaller operators, and also the manufacture, design and development of landing gear and hydraulics.

The stock market is always quick to get excited about mergers but, in the short to medium term at least, demergers usually provide better returns. Although this industry is not expanding at an exponential rate and BBA is certainly not without its competitors, it has a strong market position and with a fair wind should be able to deliver growth in excess of the industry's historical 4 to 6 per cent per annum returns.

The biggest threat to BBA is the prospect of a severe economic downturn in the US. There is an outside chance of that happening, but if it does all there will be no safe haven anywhere in equity markets. If it doesn't, BBA Aviation trades on a relatively undemanding 14.4 times forecast 2008 earnings and has managed to deliver impressive growth even when the dollar has been working against it. Flying solo looks a more attractive option for BBA, and even if this stock is unlikely to make anyone rich overnight it looks in solid shape. Buy.

Hunting

Our view: Buy

Current price: 700p

With the price of oil remaining sky high and demand showing no sign of slowing down, great things are expected of the oil services industry nowadays. So, given recent market conditions and a slightly disappointing set of numbers, the hammering Hunting took yesterday was probably deserved.

Deserved, but has it created a buying opportunity? Once again the damage was done by the weak greenback, although the results themselves were no worse than most analysts had forecast. Pre-tax profit came in at £38.9m, about 10 percentage points up on the same period last year and would have been 21 percentage points better if the company was reporting in dollars. Revenue, in sterling terms at least, was marginally lower at £877.2m.

Hunting is one of a handful of mid-cap oil services groups listed in London. It provides exploration and production operators with a range of services including well development equipment, transportation and other associated high-tech drilling hardware. Under its Gibson Energy subsidiary it also operates several terminals in Canada where it is developing gas and oil projects, partnering larger exploration and production players.

To a certain extent Hunting is a victim of its own success. Having beaten market forecasts time after time, it has come as something of a shock to the system to find a set of results that are merely in line. However, there is nothing wrong with that and the long-term outlook for Hunting remains as strong as it ever has been. There are one or two issues outside the weak dollar - poor weather has impacted on asphalt production, the price of gas has gone against Hunting and the company, like just about every other player in the entire global energy market, is finding it difficult to recruit the right people. However, demand from the energy industry for Hunting's services remains very robust and is likely to remain so for the foreseeable future.

Even taking into account the tumble, the stock trades at 16 times forecast 2008 earnings - not cheap but not excessively expensive given its strong market position, management and industry outlook. The shares may have further to fall in the very short term, but for investors with a longer term horizon, yesterday's sharp sell-off has created an excellent long-term buying opportunity.