At a time when some of the biggest energy companies operating in the UK are owned by foreign groups such as Germany’s RWE and E.ON, International Power is a rarity, a UK group successfully growing its business overseas.

The company, which was spawned by the demerger of National Power seven years ago, owns a fleet of power stations in 17 countries including the United States, Saudi Arabia, Botswana and Australia.

It runs district heating in the Czech Republic and its desalination work in the Middle East produces enough drinking water to fill one Olympic-sized swimming pool every two-and-a-half minutes.

Earlier this week the company stepped up its expansion into renewable energy with the £586 million acquisition of Trinergy, a wind farm venture with 648MW of generating capacity in Italy and Germany.

Since Philip Cox took over as chief executive at the end of 2003, the 413,000 investors still holding shares in the group from the days of privatisation have enjoyed almost nonstop growth.

The shares closed at 112p on the first day of trading in 2004 and hit a high of 468¾p in May.

Yesterday’s reaction to the company’s half-year results suggested the market thinks the shares have gone far enough. They closed down 2 per cent after bouncing back from a near 5 per cent fall in early trading.

Underlying interim pretax profits rose 6.1 per cent to £416 million but critics complained that International Power’s performance in Australia and the US had not lived up to their expectations.

The group’s profits in Australia dropped 28 per cent in the first half after it was hit by bush fire and the worst drought on record.

The bush fire took down a transmission cable, meaning International Power had to go on to the spot market and buy up electricity to fulfil long-term contracts.

Unfortunately prices on the spot market have soared as Australia’s low rainfall meant supplies from hydro generators dried up.

However, despite yesterday’s cool reception in the City, there is little reason to panic. The company is confident of a strong full year and there were more than enough success stories elsewhere in the numbers to provide encouragement.

In the UK, profits at Rugeley, Deeside and First Hydro were all higher and in the US, the acquisition of Coleto Creek is already beginning to pay off. More importantly there are further signs of upward pricing. Already, the company has forward sold 75 per cent of its 2008 output in Australia, at an average of A$45 per MWh. That is likely to be 35 per cent higher than the average price this year and should be enough for analysts to push up their EPS forecasts for 2008 by 5 per cent.

There are also huge opportunities for growth. Across the Middle East alone it is thought that some 30 power stations will need to be built in the next seven to eight years to feed developing economies.

While the yield is far from racy at 2.4 per cent, International Power is moving towards a dividend payout ratio of 40 per cent. and yesterday felt comfortable enough to declare its first interim return.

The possibility of a bid also remains, given the growing appetite infrastructure funds are showing for strong and reliable income streams. In a volatile market, reliable stocks with an impressive growth record are hard to find. Hold.

Portmeirion

It may be small, but Portmeirion is proving to be a British success story. The Stoke-on-Trent potter achieved a 19 per cent rise in half-year sales to £14.5 million, while operating profits rose 12 per cent to £838,000.

The recovery came partly as UK sales bounced back from a blip last year when deliveries were delayed, but also from the success of new ranges from Sophie Conran and the children’s book character Tracy Beaker. These ranges not only take Portmeirion into new retailers that would not dream of stocking its traditional Botanics ware but also carry a higher margin because they are sourced in the Far East rather than the British potteries. Strong sales abroad, particularly in America, are also helping the business.

Shares in Portmeirion have risen 30 per cent in the past year as the company has restructured its manufacturing and distribution network. The stock is now priced at a slightly expensive 15 times earnings but the management showed its confidence in the company by increasing the dividend 7.6 per cent, giving a decent yield of 4.6 per cent.

Those looking to buy the stock now are unlikely to see the it repeat its performance of the past year but progress is underpinned by further efficiency opportunities. Buy.

Spirent

Spirent Communications, the telecoms testing equipment maker, yesterday posted a 15 per cent fall in first-half revenues, but is asking investors to buy a longer-term, private equity-style turnaround story.

The former dot-com darling, now controlled by Edward Bramson, the activist investor behind the hedge fund Sherbourne, is midway through a strategic review that is due in October. A potential return of £107 million in cash (worth about 12p a share) is eyecatching. Disposals of noncore assets – including the Systems division, which makes wheelchair motor parts – looks likely. But the company’s underlying state is better illustrated by a strong improvement in free cashflow, up to £14.5 million in the first half, from a £22 million deficit a year earlier. First-half cost savings of £24 million, stemming from an earlier operational review, came in on target, further bolstering belief in execution.

There was also good news earlier this week in the shape of bullish numbers and a full-year profits upgrade from Cisco, the hardware giant that is a big customer for Spirent. Upgrades of web infrastructure look to be continuing apace on greater demand for data-heavy online video services, which should drive demand for Spirent’s testing products. Buy.

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