Wednesday tips round-up: Babcock International, Costain and DS Smith

7th Nov 2012 06:49

Tempus in The Times writes that there are signs now, from Babcock International's halfway figures and the outlook for the next year or so, that orders are coming through as local authorities and central government seek ways to cut spending by having work done more cheaply by the private sector. Babcock won some significant contracts in the second half of the last financial year and these have fed through to a rise in underlying revenues in the first half of this year of 6 per cent, to 1.55bn pounds. The standout was the support services side, where revenues were up 18 per cent to 453.9m pounds. Pre-tax profits were up by 13 per cent to £142.7m and the halfway dividend was boosted by 10.5 per cent to 6.3p. The shares, off 34½p at 954½p yesterday after some profit-taking, are on about 14 times this year's earnings and "may be due a pause for breath, though the longer-term prospects are still good."Tempus writes that, as chance would have it, Costain Group was releasing a steady trading statement on the same day that Morgan Sindall, a fellow inhabitant of the construction and property sector, was unveiling a nasty profit warning. The two could not be more dissimilar. The latter's problems are in social housing and new building, while Costain is in neither and prefers to refer to itself as an engineering solutions provider. Costain has been adding to its core skills by buying into oil and gas consultancy and industrial services, offering those clients a wider range of services. The order book is strong, £2.4bn for about two and a half years of revenues, £1.6bn for 2014 and beyond. One day the company will be reassigned to the support services sector, which should mean a rerating. "Long-term, attractive, but no obvious reason to buy in now".Questor in The Telegraph writes that recycled packaging group DS Smith confirmed yesterday that it continues to see "substantial" year-on-year earnings per share (EPS) growth following its purchase of SCA Packaging earlier this year. The recycled packaging group is focusing on servicing fast-moving consumer goods (FMCG) companies across Europe. This means Smith has a lot of euro exposure after buying Swedish company SCA for €1.6bn (£1.3bn)in January. This prompted a share price fall earlier in the year but these fears were significantly overdone and its shares have soared in the second half. Even after recent gains, the shares are now trading on an April 2013 earnings multiple of 12.8 falling to 10 next year. This is not overly stretched. "They were last tipped as a buy at 154½p in July and the shares remain a hold." CMPlease note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.