Sunday share tips: Babcock, IAG, Aberdeen Asset Management

31st Mar 2013 16:11

Last Thursday shares of engineering and outsourcing giant Babcock International hit roughly twice their level of five years ago. The company - whose businesses span everything from baggage handling at Heathrow airport to building frigates for the Royal Navy - is humming, bolstered by orders from both the public sector as well the private. Nevertheless, it is unclear how much growth is still to come. Some analysts believe any further appreciation in the stock will have to wait until earnings upgrades materialise, despite the fact that organic growth in excess of 10 per cent can be expected from the second half of the year onwards. "If you are happy with the (very modest) dividend alone then stay where you are, "says the Times's Danny Fortson, but "a meaningful move in the share price is a bigger ask," he adds. Markets have applauded the restructuring of International Airline Group's (IAG) Spanish subsidiary, Iberia, where Chief Executive Willie Walsh seems to be making some progress. After months of tensions the carrier's Spanish workers' unions have agreed to the terms set out by the negotiator. Yes, the company was hindered by huge costs, poor labour relations and mediocre service, yet it has also opened the door to a booming South America. Further, while last year pre-tax losses hit £139m that deficit was due to charges related to BA's huge pension fund, higher fuel costs and new carbon taxes. Meanwhile, annual turnover increased by nearly 9% to £10.8bn. The company's size would thus not seem to be an impediment to growth. Now Walsh has taken a go at Vueling, a low-cost carrier based in Barcelona, offering €9.25 per share after eyeing an opportunity feed those travellers into IAG's long-haul hubs of Madrid and London. Yet that is not a novel idea and big airlines find it hard not to infect their budget subsidiaries with high-cost practices, Fortson writes. The flow of money into asset manager Aberdeen's funds since December has exceeded all expectations. So much so that the company has attempted to temper over-optimism on the part of clients. In fact, it will go as far as to introduce a 2% fee on new money going into its funds based in the UK and Luxembourg and plans to close some US funds. Why? Performance matters in this industry and when funds are too large it is more difficult to invest and maintain performance. Then there is the inherent risk of volatility, which can be even greater in emerging markets, one of investors' preferred gepographies. The Sunday Telegraph's Questor team remains cautious about the broader market, but the sheer weight of money entering equities, as evidenced in Aberdeen's numbers, continues to support valuations it says. Hence, Questor keeps a buy.AB