Companies: SWG ��

Buy, hold and forget – that’s what you should do with Scott Wilson. The planning and engineering consultancy has seen its shares almost double to a current 312.6p since they came to the main market last March; but with a bulging order book and the ability to make key fill-in acquisitions it is set to be one of the stars of the market.

Scott Wilson, capitalised now at around �232 million, operates a global network of offices serving the transportation, property, environment and natural resources sectors.
It was ranked ninth in its industry in 2005. Since then it has won some high-profile contracts, most notably the East London Line (with fees of �14 million), London Crossrail (�12 million), Edinburgh Airport Rail Link (�18 million), the Ionia Odos motorway in Greece (�12 million) and Bahrain Islands Developments (�10 million).

A few weeks ago, Scott Wilson announced figures for the six months to the end of October 2006. They showed a 23 per cent rise in revenues to �113 million and a more than doubled pre-tax profit of �8 million. This was in spite of losses and restructuring costs in southern Africa amounting to �800,000. Diluted earnings for the half-year were 7.42p. The order book had expanded to a record �250 million and trading was said to be strong in ‘buoyant’ market conditions. With the help of acquisitions during and after the period, profits are set to beat expectations for the year.

At the time of the float, the company raised �68 million. Much of that, however, was earmarked for the repayment of debt and a top-up for the pension scheme. Even so, Scott Wilson still had a net �17.3 million of cash at the end of October and was in a position to announce a maiden dividend of 1p a share. However, three acquisitions have been made since that date for a maximum consideration of �41 million.

The surge in first-half profit could look tame by the year-end. That is because the company’s international operations – with revenue of �30.7 million including joint ventures – only delivered an underlying operating profit of �0.4 million. This was down to the problems in southern Africa. Now businesses in Zimbabwe, Malawi, Botswana and Mozambique have all been closed and operations centred instead on Johannesburg. A significantly better performance should emerge in
the second half.

The share price rise has made some adjustment for the recent strong figures, putting the shares on a likely current-year multiple of less than Numis’ forecast of 21.7. But, given the rate at which the order book is expanding, and the sheer volume of good-margin work now booked for 2007, that multiple looks set to fall sharply in the year ahead. Buy.