Companies: CNT    ERG    ETR    FOUR    MCHL    SRP    WSP   

The support services sector is one of only seven sectors (out of 34) that has produced a negative performance in the last year*. This illustrates the importance of the stock picking in this arena. Here are five ventures I'm convinced will thrive

No-brainer from Numis

Paul Jones at Numis has convinced me of the charms of 4imprint, the promotional products group being turned around by chairman Ken Minton. Not one to mince his words, Jones believes 4imprint is a 'no-brainer with the potential for special dividends'. The group actually lost £10.8 million in the year to 27 December 2003 after goodwill, bad debts and restructuring, but subsequent half-time figures revealed a swing into the black and over £8 million in net cash. That pile could be boosted by disposals, so this one's ripe for buy-backs and special dividends.

This March, when annual figures to December see the light of day, readers might expect profits of £3.8 million and earnings of 19.2p a share, foreshadowing a jump to profits of £5.3 million for 2005. At 187p, 4imprint trades for a bargain 9.7 times forecast earnings, and I reckon it could reward a punt.

Connaught a pure play

Andrew Nussey at Altium Securities fetes Connaught as a 'purer play' than rival Mears on the social housing market, backed by a £1 billion-plus order book. Connaught trades at a discount to its oft-mentioned peer and boasts bags of potential at its SME Services arm, broadly based around 2002 acquisition GasForce. 'It's the old man and the van story, but there's good margin upside', he explains. This year to August, profits should move from £7.3 million to £8.6 million, giving 30.2p of earnings and an anomalous forward rating of 18.5 times at 557.5p.

Erinaceous offers appeal

Alan Matthews at Seymour Pierce steers me towards businesses with great visibility like WSP, Mouchel Parkman and (my particular favourite) property services star Erinaceous, currently digesting its £67 million acquisition of Hercules Property Services.

Erinaceous moved to the Official List in October and should make £24 million on £130 million turnover for December 2005, rising to £27 million on £144 million sales by 2006. Surprisingly, given its growing following, Erinaceous' 187.5p price gives budget forward ratings of 10.8 and 9.8 for 2005 and 2006. Both merger and main board migration will enhance liquidity at this analysts' favourite.

Aim for Enterprise

Mike Foster over at KBC Peel Hunt points long-term investors towards Enterprise, another AIM graduate. Boasting deals in the water and telecommunications sectors, Enterprise trades just off its 52-week high at 395p. Yet despite the bull run, I agree with Foster's assessment that 'there's nothing yet priced in for major potential [contract] wins, and Enterprise has exposure to social housing refurbishment and a toehold in the education services market.'

Serco a 'core holding'

Investec Securities' Geoff Allum hankers after services giant Serco, currently on the acquisition trail. The company is buying ITNET for £235 million as well as US outfit RCI for £113 million. ITNET will build its presence in business transformation, whilst RCI, a service supplier to the federal government, will help Serco flex its muscles across the Atlantic. On forecast earnings of 11.5p (from profits of £72 million) to December 2004, and 13.6p (£85 million) for 2005, Serco trades on forward multiples of 21.2 and 17.9 respectively and remains a 'high quality core holding in the sector'. These numbers factor in nothing from these acquisitive deals, and though Serco is a massive venture, it is still very much a growth company.

* For the record, the other underperforming sectors on a 12- month view (as at 18 January) are software, forestry & paper, pharmaceuticals, IT hardware, banks and insurance.