Midas: Focus pays off for Spectris

By JOANNE HART
Updated:

 

A long time ago, Spectris was known as Fairey Group and was a straightforward engineering and electronics business.

In 2001, however, the company changed its name and focus. Today, it makes specialised instruments that help manufacturers, miners and oil and gas producers to do their jobs better. The group has a particular expertise in measuring equipment. It makes tools that help oil companies calculate how clean their oil is, for instance, and tools that help car makers test engine efficiencies.

But whatever the tool, the principal idea behind each instrument is to make equipment cleaner, quieter, more productive and more efficient.

Spectris has done well recently, particularly under John O'Higgins, right, who became chief executive 18 months ago.

In 2006, core pre-tax profits were £76.3m and this year the City expects that figure to be at least £90m, rising to more than £100m in 2008. There is a generous dividend policy, too. The dividend-was 17.5p in 2006 and it is expected to be almost 19p this year.

O'Higgins is keen to improve profitability and has told brokers he wants to raise profit margins from the current 12.9 per cent to 15 or 16% next year. This should enhance results over the long term.

Spectris is a global business with 33% of sales coming from fast-growing emerging markets, such as Asia and Latin America. These regions are becoming production and manufacturing hubs for the rest of the world, so they have a need for the sort of equipment that the firm provides.

Spectris also gleans 40% of its business from Europe and there are strong opportunities here, too.

The economies of France and Germany are expected to undergo fundamental structural change in coming years as their political leaders introduce long-overdue labour reforms. These should benefit the entire corporate sector and boost demand for Spectris equipment.

Finally, Spectris has a substantial presence in America. Here, too, there are signs that the economy is picking up and that manufacturing conditions are improving.

•• Midas verdict: Spectris shares are 893p, having risen from 787p at the start of the year. The company is well-liked by the City, but even supporters may have underestimated quite how much it could grow over the next few years. It is making the right equipment for the right customers in the right places.

Buy and hold.

West End bonanza for Great Portland

Property has had a bad press lately. There are mounting concerns about the residential market as interest rates go up and the commercial property market is also faltering.

However, one area that continues to prosper is central London. Demand for property in the capital is buoyant and the main challenge for property developers is finding good sites at reasonable prices.

Great Portland Estates seems adept at this challenge. It is smaller than many peers, but this makes it nimbler and more flexible. It is also almost exclusively focused on the West End of London and, rather than buying trophy assets, it goes for efficiently structured buildings where it can really make money.

The group, run by Toby Courtauld, produced extremely strong results last month for the year to March 31. Pre-tax profits were up 73% at £326m while the property portfolio's value rose 24.8% to £1.5bn.

Like many property groups, it has converted into a real estate investment trust. This will not affect the way investors buy and sell the shares, but it will allow Great Portland to trade its assets in a more tax-efficient way.

The company has a robust development pipeline, with 24 projects on the go. Over the past few years, it has shown a persistent ability to buy buildings, develop them, let them effectively and sell them profitably.

In the current market, this talent should enable it to stand out from less-skilled competitors.

•• Midas verdict: Great Portland shares are 655p and have fallen this year along with almost every other property firm. But the group's focus on central London makes it different from the rest. Buy.

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