9 February 2010

Fountains

BUY

Environmental support services group has delivered strong interim results and remains in takeover talks. 

18/05/2009 James Crux

In the face of economic uncertainty, environmental support services group Fountains, famed for its vegetation management expertise, delivered strong results for the half to March.

Under CEO Richard Haddon, Fountains has diversified its service range, adding activities such as street cleaning, graffiti removal and waste collection to its grass cutting and tree maintenance core, thereby dramatically expanding its addressable markets. At the same time, the company has focused on larger deals with greater longevity and raised levels of efficiency and innovation.

The benefits of this strategy were revealed at the interim, with operating profits (before bid and board change costs) growing by a third to £800,000, the best half-year operating profit in Fountains’ history.

Pre-tax profits came in at a creditable £388,000 (2008: £650,000), while the interim dividend was increased to 1.25p (2008: 1.1p), underpinned by a significantly improved cash performance.

Turnover growth from £20.7m to £21.2m was modest, however the rail sector, where Fountains previously encountered contract delays, came back strongly and the utility and local authority markets proved profitable hunting grounds.

Encouragingly in February, Fountains clinched its largest-ever contract, a three-year, diverse deal with British Waterways, worth in excess of £5m per annum. And there could be more to come, with Haddon stating ‘we are winning more diverse contracts and our pipeline has much larger contracts with greater longevity within it’.

We think shares in Fountains, which have fallen from a 52-week peak of 135p to present levels, should reclaim further ground given recent strong trading, contract momentum and the improving visibility levels within the business. Furthermore, the company remains in offer talks, which could add some significant extra spice in the months ahead. Buy.

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Tags: Buy/Hold , Deals & contracts , Mergers & acquisitions

Sector: Support Services

Market cap: £9.847m

PE Forecast: n/a

Share price: 65.5p

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