The Investment Column: New Orleans shores up Keller's interim profits
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Your support makes all the difference.Our view: Hold
Share price: 661p (+45p)
Keller is busy bolstering New Orleans' flood defences to make sure that the tragedy that followed last year's Hurricane Katrina is not repeated. The work it is doing in Louisiana helped the ground engineer deliver a massive 114 per cent rise in interim profits to £33m yesterday. It also said that its full-year results would beat expectations.
Ground engineers undertake structural work to strengthen the foundations for new buildings and carry out remedial work on old sites. Keller, which gets 53 per cent of its revenues from the US, said that business is booming across the Atlantic despite a cooling in the residential market there.
The slowdown in this segment has been countered by strength in commercial orders (it laid the foundations of Goldman Sachs' new headquarters in New York) and from public infrastructure projects. However, the US was not the only place Keller enjoyed strong growth. All four of its main territories saw sales rise by more than 30 per cent in the six months to June.
Going forward, the engineer is keen to make an acquisition in eastern Europe, which would plug a key gap in its geographic coverage. Although its shares have nearly doubled over the past 12 months, at 12 times forecast earnings, they are worth holding on to.
Absolute Capital
Our view: Buy
Share price: 199p (+19p)
The momentum behind Absolute Capital Management (ACM), the AIM-listed hedge fund operator is building. Yesterday, the group unveiled a 175 per cent jump in first-half operating profits to €13.9m (£9.5m), said its assets under management had grown 46 per cent to $1.2bn (meaning they have now trebled in the past 18 months) and trumpeted plans to launch two new funds.
One is to focus on India and the other on activist investments, to take the total number ACM manages to eight. It has found that demand for emerging country vehicles remains strong as investors chase higher returns. Meanwhile, its activist fund will focus on Austria, Switzerland, Italy and Germany. It believes there are better opportunities in this part of Europe, as equity markets in these countries are less developed and have fewer sharks fighting over prey.
May and June were tough months for hedge funds. A few went bust after equity markets across the global suffered a significant correction. ACM, however, managed to avoid the carnage and outperformed rivals. For the two months at the start of the summer, each of its funds broke even or registered a slight gain.
ACM itself generates earnings by taking a 2 per cent fee on the money it manages for clients and 20 per cent of any profit it makes from investing the cash on their behalf. The more money it attracts for its funds, and the better these funds perform, the more ACM makes for its own shareholders. The structure of the group is such that its key employees make the bulk of the earnings from share based payments. This means their interests and those of ACM's shareholders are totally aligned.
By the end of this year, the hedge fund manager plans to start paying dividends. With €20m of cash on its balance sheet, there is plenty of scope for it to do so as well as to make acquisitions. In the meantime, its shares look to be substantially undervalued. Trading at a 50 per cent discount to the AIM-rival RAB Capital, ACM stock is a clear buy.
Raymarine
Our view: Take profits
Share price: 351p (-11.5p)
Just over a year ago, this column tipped Raymarine, the designer and manufacturer of various devices for the leisure boating market. Back then its shares traded at 230p. Since they have gained over 50 per cent.
Yesterday, Raymarine posted a 19 per cent increase in first-half profits to £19.3m and a 12 per cent jump in sales to £83m. Although the figures on the whole beat expectations, some analysts were disappointed by the 8 per cent fall in sales to US retailers experienced by the group.
However, this was offset by a strong performance in emerging markets. Eastern Europe and the Middle East showed the highest per cent sales gains, up 32 per cent over the same period last year, while, in Asia, sales grew by 25 per cent. Given this trend, few were surprised to hear that Raymarine plans to raise its profile in developing countries. It has recently doubled its sales force in China and hopes to place added emphasis on Russia too.
Meanwhile, it is busy cutting costs by outsourcing its manufacturing to Hungary and closing its factory in Portsmouth. Although 250 jobs will be lost as a result of the move, Raymarine believes it will deliver cost savings of £5m next year and £10m thereafter.
It seems to be doing all the right things, but trading at 19 times forward earnings, the shares have gone high enough for now.
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