The one thing the City hates more than bad news is uncertainty, especially in the current climate of fear. Stocks exposed to any sort of risks are being indiscriminately sold-off as fund managers batten down the hatches. That means there are now several companies trading on attractive valuations, which seem to offer good value for money for more adventurous investors. Take this stock…
Bateman Litwin (Aim:BNLN)
Bateman Litwin is a specialist engineer based in the Netherlands serving the oil, gas, power, chemical and renewable energy industries. Bateman basically does two things. It provides comprehensive engineering, procurement and construction services; and it develops its own proprietary technologies, such as its patented solvent extraction process.
Last week, despite concerns over the health of the global economy, Bateman posted a bullish pre-close trading statement saying that underlying first-half earnings would “significantly exceed City forecasts”, with revenues “over twice that of the comparable period”. Moreover, second-half trading was said to be in line with expectations, with the order book up to $1.25bn from $737m only 12 months ago. Growth is being driven by the construction of new energy facilities as oil prices push towards $100 a barrel. For instance, the firm recently won contracts for a $120m oil storage site in Morocco, and the design of two ethanol plants in Italy and Hungary. Joint house-broker Oriel is forecasting turnover and underlying EPS of $907m and 18p respectively this year, rising to $1.04bn and 22.3p in 2008/2009. That puts the shares on p/e ratios of 8.4 and 6.8, which looks far too cheap for a company with such a healthy order book.
So what’s behind the share price’s demise from 328p in July to just below the original 180p level at which Bateman floated on Aim in May 2006? Much of the sell-off has been due to fears over its civil action in the US against the previous owners of Delta-T: a business it acquired in August. Under the terms of the deal, Bateman paid $45m plus 11.8 million shares – but has since discovered that the “financial condition of Delta-T” was “materially different” from that represented by the owners. Hence substantial damages are being sought.
The next risk relates to Bateman’s exposure to Kazakhstan, and especially its $530m of fixed-price contracts to develop the Kashagan field – which although now 80% complete, still represents around $110m of the orderbook. Eni Spa, the field’s operator, has been criticised for delays and cost over-runs by the local government, and as a result has been forced to hand over more control to the state. The danger for Bateman is that greater intervention by Kazakhstani officials could affect its future growth in the country. Finally, as an international contractor, it is also exposed to the usual risks of foreign currency, geopolitical risk and the management of large turn-key projects. But with its markets buoyant, the City’s mark-down looks over-done. Interim results are due out on 26 March.
Recommendation: SPECULATIVE BUY at 179p (market cap £201m)
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments