US Edition Plant Health Care
242½e_SRit+10
Questor says BUY
The voice of the neo-Malthusians has got louder in the last few years. They predict widespread human catastrophe because soaring population growth and shifting climate patterns will mean we cannot produce enough food.
This is an extreme point of view, but the argument is based on some sound fundamental issues. Demand for food is going to rise significantly over the next few decades as the global population explodes – and it has to be managed. The United Nations predicts that the world population will hit 7bn in early 2012 – and rise above 9bn by 2050.
Plant Health Care develops technologies that improve crop yields as a way to address this problem. In March, Questor advised investors that had bought shares in the company to hold when they were at 158p. They were initially tipped on April 20 2008 at 341p, so investors were sitting on large losses.
However, the world has changed significantly since March – and the shares have recovered from lows. The rating given in March was probably overly cautious – but Questor does not apologise for being careful with money. Yesterday the company issued an announcement that is another vote of confidence in the commercialisation of its technology. Shares in Plant Health Care are therefore now a buy.
The group has had a long and rocky road to the commercialisation of its technology. Its two main products, myconate and harpin, have had mixed fortunes.
Myconate has been disappointing. It is a product designed to increase the rate of plant root colonisation, but partner Bayer ended its exclusivity agreement for developing a myconate seed-coating with a Bayer fungicide at the end of last year. The company is in discussions with other groups about a new deal.
Harpin is a different matter. It is a protein that, while harmless to crops, causes the plant to believe it is under attack and to trigger its natural defences. It suppresses pests such as nematodes and extends the shelf-life of salads.
At the end of last year the group licensed the exclusive rights to Monsanto for corn, soya beans, cotton, rapeseed and selected vegetables. In return, it will receive the milestone payments plus ongoing royalties based on the total volume of harpin seed treatment.
Yesterday's announcement was brief but significant. Plant Health is expanding its partnership work with The Scotts Company, the world's leading retailer in the consumer lawn and garden industry.
Plant Health Care will supply Scotts with a natural biologically-enhanced fertilizer which will go on sale in selected markets next year. Full details were not released, but the deal is likely to be significant, bringing profitability closer to hand. Analysts expect the group to table its first profit in 2010.
Because this is still a loss-making company, it is not one on which to bet the farm, but yesterday's news of further commercialisation of its products is welcome. The shares are now a buy.
A share club of which Garry White is a member has a holding of 383 shares in Plant Health Care.
Hill & Smith
264½p +14½
Questor says BUY
INDUSTRIAL group Hill & Smith tabled an excellent set of interim numbers yesterday, given the market backdrop, with a particularly impressive reduction in net debt.
In the six months to June 30, net debt fell by 27.4pc to £106.1m, with about £26m of this reduction coming from cash flow and the rest accounted for by currency movements.
Hill operates in three divisions – infrastructure, galvanising and building and construction products. Revenues in the period fell 7pc to £196.8m. Revenues at its infrastructure business rose, 8.1pc to £99.7m, with approximately half of this accounted for by currency movements. This helped to offset some of the fall in revenues at the other two divisions. The group increased its interim dividend by 9.3pc to 4.7p, payable on January 7.
It is not surprising that revenues for construction and galvanising (including currency benefits) fell by 11.5pc and 25pc respectively. However, both these units are leveraged to an upturn. It is positive that margins at galvanising improved to 17.4pc from 15.7pc as a result of headcount reduction and a fall in the price of zinc.
The infrastructure unit is benefiting from government spending. Derek Muir, chief executive, notes that road widening schemes are easy to start up and get spending into the economy quickly. Hill hires out the temporary road barriers used in these road widening schemes. Investors driving around the M25 as the road is widened ahead of the Olympics will be surrounded by Hill's products for their entire journey. Other such schemes will be started around the world.
Hill's US road barrier business is also expected to take off next year, boosted by stimulus money. There should also be progress on UK street lighting PFI schemes, for which Hill provides the columns for street lighting.
The shares were tipped at 202p on June 28 and they are 31pc ahead of their initial selection price, significantly outperforming the market. The shares are now trading on a December 2009 earnings multiple of 7.6 times. With a yield of 4.2pc, the shares are a buy.