Engineer builds strength abroad

By THIS IS MONEY
Updated:

 

CONSTRUCTION is an unlikely sector to produce growth companies, but building and engineering consultancy WSP Group has delivered for investors.

The shares floated at 60p in 1987 and today stand at 433 1/2p, more than doubling in the past two years alone.

WSP's share price performance has reflected its consistent growth in turnover and profits, and its ability to deliver on its strategy of organic and acquisitive growth. Under managing director Chris Cole and finance director Malcolm Paul, WSP has developed a business offering a range of services that includes facilities management, structural engineering, road infrastructure and environmental audits.

Customers include blue-chip firms such as BAA and GlaxoSmithKline, and current projects include the redevelopment of Birmingham's Bull Ring and the Arsenal football stadium in north London.

In the early Nineties the firm expanded outside the UK to reduce its exposure to one market and to service the overseas needs of its customers.

A year ago it paid £25m for US companies Cantor Seinuk, which specialises in skyscrapers, and Flack & Kurtz, a building services consultant.

Last month WSP, whose market value is now £228m, paid £72.5m for lookalike Swedish consultancy Jacobson & Widmark. It funded this with a £58m rights issue at 350p a share and debt. J&W, expected to make profits of about £8m this year, operates in the same sectors as WSP and its acquisition means just over half the group's business is now outside the UK.

WSP is forecast to make profits of £15.4m this year, rising to £23m in 2002, which means the shares trade at 15 times forecast earnings. WSP has focused on growth, so its dividend is low.

• Midas verdict: Buying J&W is a major leap for WSP and so not without risk, but the deal enhances earnings immediately and provides a gateway to the Continent, where it is now the third-largest consultancy.

As well as acquisitions WSP has organic growth potential from expanding markets and the increasing cross-selling of services to clients.

WSP has not disappointed in the past and J&W gives it the scale to deliver in future. The shares are a buy.

Dragon could roar
BUOYANT prices have turned the spotlight back on the oil sector, and among those companies worth closer inspection by investors is Dragon Oil.

The independent oil and gas production company is listed on the London and Irish stock exchanges, but its focus is the Cheleken field in the Caspian Sea off Turkmenistan.

Cheleken has independently estimated reserves of close to 600m barrels of oil, and drilling platforms are already in position, but they are Russian-built and tend to be old and unreliable.

Dragon's plan is to introduce Western technology into the area to drill for and extract the oil, and then ship it in tankers to Iran, with which it has an agreement to sell it on. Until now the project has been in the planning stage and there have been delays implementing it, but in recent months chief executive Ian Baron has started to put it into action.

Last week the company successfully completed its first drilling well, and over the next few months will determine the speed at which it can extract the oil.

• Midas verdict: Dragon is 66% owned by the Emirates National Oil Company, but there is still a healthy volume of freely traded shares. The shares, slightly down from a recent high, are now 32 1/ 4p, valuing Dragon at £112m. However, they are still far short of what they could be if Cheleken succeeds, and are a speculative buy.

Midas update
DOUBLING your money in a year is not to be sniffed at, which is why investors who followed my advice to buy computer games retailer Electronics Boutique last July should think about taking profits.

Recommended at 45 1/ 2p, the shares have not dropped below that level and have been buoyed by the arrival of Sony's PlayStation 2 and other planned launches. Following results in April, which showed strong profits and sales growth, I still rated them a speculative buy at 85p and they closed last week at 100p.

The sharp rise has been helped by positive comment from analysts and hopes for launches, such as the Game Boy Advance, out on Friday, and Microsoft's XBox and Nintendo's GameCube next spring.

Electronics Boutiques' strong loyalty card base of 2.5m customers means it is well placed to benefit, but there is always the risk of a repeat of the heavy price discounting of two years ago by rivals Dixons and Woolworths.

That was a big blow and, while it may not happen again, there is a lot of positive expectation in the share price for Electronics Boutique to live up to, so take profits.

ALSO worth selling is clothing retailer Moss Bros, currently 41 1/2p against last December's buy advice at 29 1/2p - a 41% gain. Joe Bloggs clothing entrepreneur Shami Ahmed has taken a three% stake, prompting suggestions he might bid, but investors might do better to sell on the rumour than wait for a move.

Midas is edited by Andrew Leach

Most watched Money videos