ABP shows off ports' potential

THE INVESTMENT COLUMN

Port operators have been the stock market's flavour of the month recently - the abolition of the registered dock labour scheme and the UK's export-led growth have helped revitalise Britain's ports, once the symbol of economic degeneration, while takeovers have pushed the sector's shares to a 20 per cent premium to the rest of the market.

Associated British Ports, the country's largest operator and owner of Southampton and Hull docks, showed again yesterday the sort of improvements being made. Interim profits up 14.3 per cent to pounds 43.5m were in line with expectations, but nevertheless creditable given that ABP managed both pounds 36m in capital spending and a reduction in gearing.

Profits from port and transport operations increased from pounds 35.7m to pounds 37.4m, but the best-performing division was on the property side. Income from port-related property rose to pounds 13.4m from pounds 11.1m, property investment yielded a further profit of pounds 6.5m and development an additional pounds 1.4m. Further development of property at many of ABP's 22 ports will raise rental revenues, and the returns from land at Cardiff, where the new opera house is being built, should be high.

Expansion is likely to be organic as the company's 25 per cent share of the market means acquisitions could raise monopoly problems. A further pounds 35m will be spent in the second half on improving facilities, and over the next three years another pounds 60m invested at Southampton, the UK's second- largest container port.

ABP's confidence was reflected in yesterday's announcement that the full- year dividend is set to rise 18.2 per cent to 6.5p. The interim payment is 3p, up from 2p. Full-year profit forecasts are maintained at around pounds 90m and, with earnings of 18p, ABP trades on a p/e of 17.5. Even with ABP's high-quality income stream and ability to throw off cash, that is high enough.