Date: Sunday 17 Jun 2012
Maintenance work might not be glamorous, but in times of austerity a business whose work comes in regardless of economic conditions stands out from the crowd. Misunderstood Renew Holdings is widely associated with its 200-year history in construction, but this is misguided as the company is focused on essential maintenance work. It should also benefit as customers cut back on capital spending and instead look after existing infrastructure for longer, writes The Financial Mail on Sunday´s Midas column. Client include Sellafield nuclear power station, Network Rail, Northumbrian Water and London Underground. In each case, Renew is responsible for repairs that simply have to be done, either for regulatory reasons or to keep infrastructure up and running. With Network Rail, for example, it covers every aspect of maintenance except repairing the tracks, from mending bridges and fixing tunnels to removing foliage. At Sellafield, the group carries out specialised maintenance and decommissioning work, often involving extremely hazardous waste. Engineering contracts tend to last a long time so the company’s prospects can be more easily monitored and the business is generally more profitable than building, so chief executive Brian May’s strategy makes sense. Many brokers still associate Renew with the construction sector, so it is undervalued by the market. But this should change as May pushes ahead with his growth strategy. At 75p, the shares are a buy, Midas says.
The outlook for bank shares has been boosted by the Bank of England's massive injection of cash into the banking system and the subtle watering down of the Vickers commission’s banking reforms. For the brave investor, this all amounts to a screaming buy signal. Shares in Lloyds Banking Group, Royal Bank of Scotland and Barclays all bounced on Friday and could continue to trend higher. Nonetheless, risks of Eurozone contagion remain high. If Greece exits the euro and that prompts a full-scale meltdown of the single currency, our banks will have big problems. But the BoE has acknowledged that regulation can't protect against that, softening the other big risk that has been hanging over Britain’s banks. For professional investors, bank shares could start to get interesting again, writes Ian Dey in his Inside the City column for the The Sunday Times.
A firm operating from a basement in the Square Mile is now trying to replicate the merchant banking model on which the great names of banking — Schroder, Rothschild, Baring — all made their fortunes. City of London Group is financing trade for small businesses, many of which are being spurned by big banks. Rather than just providing loans, it is stepping into the supply chain and behaving like the old merchant banks. It will buy the components that allow a manufacturer to fulfill big orders, in exchange for a slice of the profits, for example. That’s just one of four businesses in the group. It provides working capital to solicitors, dental practices and other professions. It is also behind a company funding divorce litigation — which offers guaranteed returns as all divorces end in a settlement of some kind. City of London is due to update on trading this week. While it is forecast to lose about £1.9m this year, revenues are predicted to grow by about 500%. Analysts at Singer Capital Markets say that if the management’s forecasts are to be believed there is room for the shares almost to double over the next few years. With a market capitalisation of about £12m, City of London Group is tiny. I suspect this is a tiddler worth watching, says Ian Dey in the Sunday Times´ Inside the City column.
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