The Investment Column: Severfield-Rowen's prospects unshaken by blitz on shares

Clipper Wind Power; 3i

Our view: Hold

Share price: 245p (-144.75p)

Fortunately the steel structures used to support buildings such as Arsenal's Emirates Stadium, Wimbledon's Centre Court and Heathrow's Terminal 5 hold up better than the share price of the company that supplies the fabrications, Severfield-Rowen.

Even in these fraught times the reaction to news that it had seen a softening in some key markets was extreme. The price fell 42 per cent, wiping £147m off the company's value. No contracts have been cancelled or delayed. In fact the order book has risen by £35m to a best ever £440m.

Dazed directors responded the best way they knew to the blitz on the shares. They went into the market to buy some.

The company, in a trading update for the year just ended, said it expected profits of £42m – a shade below some forecasts. But weakening in some markets – out-of-town warehouses and distribution centres and inner London offices – meant growth would be slower this year. Analysts slashed forecasts by £6m or 12 per cent to £50m. Somehow the market translated the slowdown into a 42 per cent assault on the shares, although they later recovered 5 per cent of the loss.

Over the past few years the company has consistently delivered good results, helped by buoyant conditions in the construction industry and a readiness by banks to lend. Obviously the jury is out on how the banks will in future respond to requests for loans for building projects. Coupled with that, there have been signs that the London commercial property market is slowing down. Even if orders are not cancelled, Severfield-Rowen can expect tougher contract negotiations over price, which will put margins under pressure.

The company is acknowledged as a leader in the world structural steel construction industry, but the shares will probably remain friendless until evidence emerges of an improvement in trading conditions. Hold.

Clipper Wind Power

Our view: Hold

Share price: 630p (+5p)

The amount of electricity generated by renewable technologies such as wind, wave and tidal power in the UK will have to increase from 5 to 40 per cent over the next 12 years, according to the European Commission. And most of that will have to be delivered by wind power. Which is why Clipper Wind Power could one day be as vital to the economy as British Coal used to be or British Energy is now.

The company sells wind turbines to power generators, and harbours ambitions to operate wind farms across the globe. There are no shortage of orders, but progress has been blighted by manufacturing difficulties, leading to cost over-runs and financial penalties for late deliveries.

In a trading update, Clipper said it expects second-half losses to be on the same scale as the first, implying a total deficit for the year of £81m. However it still has £51m in the bank.

It produced 137 turbines from its Cedar Rapids, Iowa, plant against eight the year before, and is gearing up to produce 311 in the current year, when it is expected to break even at the very least.

Much of the recent excitement has surrounded a joint venture between Clipper and the Spanish group Helium Energy to begin developing and operating wind farms.

There are estimates that Clipper's 72 per cent stake could eventually be worth 500p a share, against a current price for the whole business of 630p, valuing the group at £676m.

The shares, which shrugged off yesterday's news of continued losses, floated on AIM at 190p in 2005. Wind power is here to stay, and Clipper is in a powerful position to take advantage of the need for renewable energy.

As it ramps up production to meet demand, it needs to ensure that there are no more technical glitches. Hold.

3i

Our view: Buy

Share price: 950p (+39p)

It is times like these when investors at 3i, Europe's largest private equity group, can earn their spurs. Instead of ducking for cover, 3i is excellently placed to take advantage of depressed and nervous markets. It has the muscle to exploit its position and impose realistic valuations on companies needing cash to expand.

So it is encouraging to hear that the group is indeed using its financial clout to identify sound investment prospects despite the financial outlook. As it well knows, it can get more for its money now than it could at the start of the year.

However, while there is unlikely to be any shortage of investment opportunities, the flipside is that weaker markets will make it less easy for 3i and others like it to cash in on earlier investments, especially the recent ones, whose value will have already come down.

Not surprisingly, a trading update for the nine months shows that total realisations – sales of assets – fetched £1.47bn, which is much the same as the previous year. During the same period 3i invested £1.78bn, up from £1.13bn the year before.

Tighter market conditions might stunt growth this year, but 3i remains a class act for the long term. Buy.