Each week, a professional investor tells MoneyWeek where she’d put her money now. This week: Hilary Aldridge, manager, F&C Special Situations Fund.
Despite the turbulence in the credit markets, the British stockmarket has held up relatively well year-to-date. However, economic data is rapidly deteriorating and the outlook for the consumer is very gloomy for the months to come. With inflationary pressures and the threat of recession in mind, we are looking farther afield for investment ideas.
My preference is for companies that can demonstrate resilient earnings in the current market conditions. I am avoiding most credit-related stocks and those relying directly on the British consumer. On the other hand, I am identifying opportunities in UK-listed firms that have overseas earnings, especially those operating in the energy and oil and gas sectors.
I particularly like companies involved in the energy generation and services industries. My first stock pick is Rurelec (LSE:RUR), a company focused on rural electrification activities in Latin America, mainly in Argentina and Bolivia. Rurelec’s two main lines of business are the ownership of power generation facilities on the national grid and in isolated areas, and the management of rural electrification projects. Its growth potential is underpinned by the intense energy needs across the region – not only related to GDP growth but also to mining.
The company also gains extra revenues from carbon credits through its use of combined cycle generation. Valuations of similar companies operating in the Indian market are three times higher than that of Rurelec, which is currently trading at below the replacement value of its assets.
Another stock I like is Lamprell (LSE:LAM), a company offering services to the offshore oil industry. Its main activity is providing specialist maintenance and refurbishment services of jack-up rigs in the Arabian Gulf. Lamprell is expanding its quayside capacity, which should enable it to grow sales rapidly. On top of this, the company has recently expanded its capabilities by moving into building new rigs and floating production ships. Lamprell has managed to build a strong position in this very attractive, niche market. There is a demand for new, deepwater rigs to meet exploration targets and the existing global fleet has been neglected.
Lamprell’s shares are attractively valued, given its growth, and high oil prices should keep demand for its services strong. Considering this backdrop, I’m confident the market for rig refurbishment will continue being strong to 2010 and beyond.
My final choice is Regal Petroleum (LSE:RPT), a new holding in our fund. This Ukraine-based oil and gas explorer has a chequered history, following struggles over asset ownership and disagreements between shareholders on its strategic direction. However, improvements have been made in the wake of resolving ownership issues and the appointment of a new CEO, David Greer, who previously worked for Shell. Greer has introduced Western techniques to improve oil production. Regal is also drilling previously ignored exploration assets.
Another of its attractions is that Ukrainian gas is currently trading at a discount to the European gas price. We expect that discount to be removed over the next three years. In brief, compared with its peers, Regal is a lowly-valued oil explorer with very attractive growth prospects.