Investors looking for an intelligent turnaround situation should look no further than the increasingly diverse environmental support services venture Fountains, whose fortunes have been revived under chief executive Richard Haddon.

Having addressed the cost base, Haddon, appointed permanent CEO at the start of 2007, is also broadening Fountain’s markets and range of services and winning a number of long-term contracts with large companies in some new sectors. Whilst the core business of managing vegetation for electrical and rail utilities remains buoyant, last year’s move into the local authority market, where services range from graffiti removal to facilities management and cemetery management, has proved an astute one. Diversification continued during the first half to March, with contracts clinched with two new major customers, Thames Water and British Waterways.

Results revealed a modest decline in turnover to £20.7m (2007: £21.4m), which reflected delays to some work with established customers and prompted forecast downgrades. However, turnover and margin gains elsewhere meant profit before tax improved to £600,000 (2007: £300,000). And from earnings of 3.27p (2007: 1.61p), the interim dividend was increased to 1.1p (2007: 1p), reflecting management’s rising confidence in prospects.

Significantly, Fountains increased its order book to a record £105m (2007: £88m) during the half, giving investors ever-improving visibility of earnings. Based on forecast annual earnings for September 2008 and 2009 of 10.9p and 12.4p, from sales of £46.1m and £50.4m respectively, Fountains trades on prospective multiples of 11.9 and 10.5. That rating isn’t particularly demanding, given scope for upgrades based on new, larger contract wins from a promising new business pipeline. Buy.

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Fountains	AIM	£10.5m	70.00p	0.00p
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