The Investment Column: FKI engineers good results but US fears make it just a hold

Charles Stanley; Wincanton

Our view: Hold

Share price: 107.25p (+1.25p)

For the first time in many years, FKI put out a set of annual results yesterday which not only beat City expectations but were free of any major negatives. The engineer reported a 14 per cent rise in underlying pre-tax profits to £79m and was upbeat about its prospects.

All this comes despite rising raw material prices and a falling dollar. FKI is an old-school metal-basher. It makes doorknobs and window locks, warehouse handling equipment, and parcel sorting systems. It also generates about half its revenues from across the Atlantic, so the ongoing weakness in the US currency makes life harder.

The main driver behind last year's stellar performance at FKI was its lifting products division which enjoyed buoyant demand due to the strength of the mining sector and the hurricanes in the Gulf of Mexico.

Many analysts upgraded their forecasts in the wake of the figures. This left the stock trading at just 11 times forward earnings, a discount of around 20 per cent to the wider engineering sector, and yielding more than 4 per cent.

But, before readers rush out to buy into FKI, it is worth drawing attention to the clouds on the company's horizon. The most obvious of these is its heavy exposure to the dollar. The way the US economy is performing, the decline of the greenback is unlikely to stop any time soon - if anything, there is a risk that it will accelerate.

FKI is also vulnerable to a downturn in the US housing market, into which it sells things like doorknobs and window locks. Recent data on American house prices certainly suggests the boom there is now petering out. Finally, high raw material prices look set to hold back the engineer's profit growth for the foreseeable future. At 107.25p, the shares are just a hold.

Charles Stanley

Our view: Avoid

Share price: 340.25p (-1.5p)

It is difficult to characterise yesterday's annual results from Charles Stanley as anything other than outstanding. Pre-tax profits at the stockbroker rose by a quarter to £13m, the funds it manages for clients increased from £7.7bn to £9.7bn and it raised the final dividend by 28 per cent 5.35p.

The improvement in the quality of Charles Stanley's funds under management was particularly impressive. Discretionary managed funds increased by 57 per cent to £2.2bn. This is where the stockbroker does what it likes with client money in return for a fee and tends to be more profitable than running advisory funds where it has to consult clients before making an investment. Managed funds now account for more than 50 per cent of the total money pot the firm runs.

There was also a top performance from the corporate broking side of the business, in which Charles Stanley act as an adviser to small companies in return for a fee. Here the group enjoyed a 34 per cent increase in revenues to £6.7m and grew its retained corporate client list from 50 to 55 companies.

Nevertheless, now is not the time for investors to be buying into stockbroking firms. Their performance is totally dependent on the state of the wider stock market and judging by yesterday's FTSE 100 performance, confidence in equities is fragile. If the recent downturn turns into an outright bear market, Charles Stanley profits will suffer greatly and so will the value of its own shares. Avoid.

Wincanton

Our view: Buy

Share price: 310p (15.75p)

Wincanton has flourished since it was spun out of the dairy group, Uniq, five years ago. Yesterday the warehousing and haulage company showed that this trend is unlikely to be reversed any time soon by posting bumper full-year figures. Profits rose 9.5 per cent to £32m, revenues grew 9.6 per cent to £1.8bn and its payout to investors increased 10 per cent to 12.54p a share.

Since the demerger, Wincanton has delivered annual compound dividend growth of 8 per cent, which is in stark contrast to the performance of Uniq. Analysts said that the dividend rise Wincanton unveiled yesterday was larger than expected and reflected the confidence of management in the future of the business.

Management is focused on growing the business organically in Europe. That means convincing multinationals on the Continent to use Wincanton across several countries. Recent new business wins show they are succeeding on this front. Among them is a contract with the baby food group, Numico.

In these volatile markets, Wincanton looks like a safe place for investors to put their money. It has a clear growth strategy, generates bags of cash (Credit Suisse calculates it has a free cashflow yield of 7.5 per cent) and its shares yield 4 per cent, a dividend which is 1.5 times covered. Buy.