Small cap share tips: KBC, W&O and Eleco

By This Is Money
Updated: 08:57 EDT, 26 March 2008

Our regular review of the latest developments and hottest tips in the exciting world of the Alternative Investment Market is written by analysts at the UK's leading authority on fast-growing companies, Growth Company Investor.

Earnings soar at energy industry consultant

KBC Advanced Technologies, the energy industry consultant, has illustrated the classic operational gearing inherent in its business model with figures for calendar year 2007.

Chief executive George Bright reported a 66% rise in operating profits to £3.1m, from sales increased by a modest 8% to £38.1m. Earnings per share gushed north by 67% to 3.5p, from which investors were furnished with a 50% hike in the total dividend to 0.75p.

KBC is a consulting, software and process engineering business that helps refinery owners improve levels of efficiency, safety and profitability from its network of offices spanning the UK, the US, Singapore, Russia, China and Japan.

Recent stellar growth rates reflect high activity levels in the oil refining industry, where the economic environment for clients remains good, with demand for energy and oil products increasing despite the inexorable rise in the crude oil price and refinery owners keen to maximise profits.

Clients are also clamouring for the group's training and safety-related services, with demand driven by the consequences of high-profile safety-related incidents such as the BP Texas City explosion, which have increased the safety measures required by refinery owners, particularly in North America.

With last year's contract awards amounting to more than £40m, up by 14% over 2006 and the contract backlog continuing to rise, KBC is sure to remain busy indeed.

For 2008, analysts are looking for significant pre-tax profits growth from £3m to £3.5m, giving earnings of 3.9p and placing KBC on a prospective multiple of only 10 times, inexpensive given growth based on a busy secured workload.

Share price – 39.5p
Market Cap – £22.46m
Ticker – KBC
Recommendation – Buy

GROWTH COMPANY INVESTOR OFFER: Subscribe to Growth Company Investor for immediate access to many more small-cap recommendations. Click here.

Western & Oriental wanders higher

Lately unloved, shares in Western & Oriental, the acquisitive specialist luxury travel group, have added 0.25p at 11p after an upbeat AGM announcement. Chairman David Howell flagged up a good start to the year, with organic growth in line with expectations and margins maintained, despite 'some evidence of pressure on pricing'.

The Ski Dream tour operation has had a strong start to the season, particularly in North America, and all of Western & Oriental's conference and incentive (C&I) businesses are performing well. Howell added that the integration of the company's tour operations brands 'continues at pace' – Western & Oriental has integrated 12 businesses and brands over the past 18 months alone. The benefits of added scale, synergies and better terms with suppliers are helping the group uphold margin in a competitive market.

Investors were also treated to positive comments on the order book, which has increased 'very significantly over the same point last year', both organically and with the help of acquisitions. In addition, African tours specialist Rainbow, bought in December for an initial £4.17m in cash and shares, is showing year-on-year growth despite the current situation in Kenya.

Back in December, Western & Oriental announced a 148% surge in turnover to £35.8m for the year to September, driven by a spate of acquisitions, although losses at the pre-tax line widened to £1.9m (2006: £1.3m). While we like its focus on specialist, niche tours, its strong order book and plentiful pipeline of deals, Western & Oriental operates in a sector linked to the vagaries of consumer spending and continues to digest acquisitions. For now it is a speculative share price recovery play, rather than an outright buy.

Share price – 11p
Market cap – £25.07m
Ticker – WEST
Recommendation – Speculative buy

SPECIAL OFFER: In association with This is Money – immediate access to Growth Company Investor's service, with no obligation, for one month. Click here.

Eleco one of the long haul

Selling into the under-fire construction sector has not proved too taxing for building systems and software specialist Eleco, as first-half results show impressive growth.

For the six months to December sales rose 36% to £39.4m, pre-tax profits by 48% to £3.7m and earnings by 24% to 4.5p. Management, led by veteran entrepreneur John Kettley, are confident enough of prospects, having lifted the dividend 43% too, to 1p.

Three of the group's four divisions – pre-cast concrete, building components and software – outperformed the comparable period last year, more than compensating for the connector plate business, which suffered from exposure to the slowing house-building sector in the UK, Ireland and South Africa.

Milbury Systems, an acquisition taking the group into the new areas of flood defences, agricultural and blast walls, was bolted onto the concrete arm, which Kettley says now has its largest ever order book in areas such as budget hotels and university accommodation.

Building components doubled orders for its timber-frame products as it gained visibility in the market, especially for affordable housing projects and Kettley says roofing scored higher orders too and is bolstered by strong work for schools. The software division was turned around from losses to profits, with 2006 acquisition Asta making a good contribution and the consumer-facing visualisation software product signed up by builder Wimpey as well as Channel 4's popular Grand Designs programme.

For the full year, upgraded forecasts from house broker Collins Stewart point to earnings per share of 10.8p, placing the shares on an undemanding prospective multiple of 8.4. The shares are worth buying and locking away for the long-term.

Share price – 91p
Market cap – £54.6m
Ticker – ELCO
Recommendation – Hold

Growth Company Investor offers unrivalled insight into small-cap companies. Click here to find out more.