Given concerns over the health of the British economy as we face spending cuts and tax hikes, investors may think the safest place for their savings is under the mattress. But there are better ways to protect your wealth. One strategy is to buy UK-listed stocks with plenty of overseas exposure – especially in stable countries with ship-shape finances. Take Hyder, an international designer of civil engineering projects. The group employs 4,182 staff, including surveyors, architects and environmental experts, to build assets such as high-speed railways, skyscrapers and schools – all sectors that will continue to grow in the long run.
The great news is that Hyder is cheap. Investors are treating it like a British business, with all the uncertainties of the ‘austerity’ era hanging over it. Yet only 15% of its profits are made here. Just 10% of its sales come from the public purse, while nearly half of its profits come from Australia and another 34% from the Middle East (largely Abu Dhabi, Qatar and Saudi). The rest originate from Hong Kong and Germany. The firm ended March with a £346m order book (equivalent to 1.1 times revenues) and a solid £3.6m cash pile.
For the year ending March 2011, I expect turnover of £290m and underlying earnings per share of 38p. The chief executive, Ivor Catto, remains “confident of further progress this year” based on a “robust pipeline”; 60% of this year’s top line is already in the bag. In the 18 months Catto and financial director Russell Down have been in charge, not only have the numbers improved, but they’ve also weeded out much of the dead wood (headcount is down 11%) and set up low-cost design centres in Manila and India. A far tougher performance culture has been introduced too: it’s not exactly rocket science, but it’s effective.
Hyder Consulting (Aim: HYC), rated a BUY by Numis Securities
So what are the potential hiccups? There’s a small legacy exposure in Dubai (say £3m) to consider, a £20.3m (net of tax) pension deficit and the risks associated with foreign-exchange moves and contractual disputes. Competition from the likes of Mott MacDonald, Mouchel and Scott Wilson is hotting up too. But at 295p, the shares are on a bottom of the cycle p/e of 7.8 and pay a 2% yield, which is 5.8 times covered. House broker Numis has a 379p price target.
Recommendation: BUY at 295p
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments