Tuesday May 13, 02:43 PM
A Solid Share For Any Market
By Rodney Hobson
Defence and support services specialist VT Group (LSE: VTG.L - news) (LSE: VTG (Xetra: VTG999 - news) ) has produced impressive profit figures and could prove a good stock to hold whether markets go up or down.
Turnover was up 20% to £1.2bn
in the year to March compared with just over £1bn in the previous 12 months. More than half the growth was organic.
Underlying profits were also 20% ahead and the pre-tax figure came out a third higher at £71.3m, with all divisions said to have made significant progress over the past year. The dividend total is raised 11% from 11.9p to 13.1p.
VT, once looking a wreck as its traditional shipbuilding operations ran into terminal decline, has successfully reinvented itself. Over the past 12 months it has expanded into new high growth areas of engineering support services in nuclear energy and waste management.
Shipbuiding has not gone altogether but has moved into the more stable arena of supporting the Royal Navy. A £1bn contract has been signed for the Future Strategic Tanker Aircraft.
The mobilisation of US Forces in Afghanistan and Iraq continues to sustain a high demand for services in the US. Chairman Michael Jeffries is confident that even if these overseas operations are scaled down VT is likely to see a continuing high level of demand for services as the US military resettles into its home bases.
The order book at financial year end was up 32% at £4.9bn.
All this means that VT has excellent visibility of earnings, strong operating cash flow and a good order pipeline for the current year and beyond.
Much of the improvement at VT has admittedly been reflected in the share price over the years with a rise from 225p at the end of 2003 to a peak just above 700p earlier this year. However, the shares have been held back by the general stock market malaise in recent months and they have been as low as 600p, where there seems to be a solid floor.
The big test is whether they can break above 700p, having tried to do so and failed on three separate occasions already in 2008. Having initially run up 5p to 696.5p on the results they eased back to stand marginally lower. This presents a slightly better buying opportunity for those who see the shares either as a defensive stock or as a continuing growth story.
The forward price/earnings ratio is a little above average at nearly 17 times future earnings but is hardly demanding and the prospective yield is unexciting but solid at just over 2%.
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