Forth Ports is known as much for being the only listed ports operator remaining in the UK as for its ownership of the giant Tilbury and Leith docks.

For months, however, it has been as much a question of not if but when it would be taken over, following a familiar path trodden over the past four years by rivals starting with Mersey Docks, then P&O, PD Ports and, 16 months ago, Associated British Ports (ABP) for £3.3 billion including debt.

Confirmation that Babcock & Brown had bought a 20 per cent stake in Forth only presses home the question of how much longer it will remain independent. Analysts estimate that there is about €15 billion (£11.3 billion) of uninvested capital sloshing around European infrastructure funds looking for a home and it is not only Babcock that is seeking investment opportunities but rivals including 3i and Macquarie.

The onset of the credit crunch last autumn brought valuations of ports back to levels sufficiently attractive to allow Babcock’s infrastucture funds to pull off a trio of ports deals in December.

Forth Ports shares, meanwhile, fell from a high of more than £22 in early 2007 to under £17 by November, triggering Babcock’s first investments in Forth.

Forth’s attraction for any investor lies in its simple business model of strong cash flows from the ports operation producing operating margins of about 25 per cent, which allow for the gradual regeneration of a large landbank of dockyards into huge housing and commercial office developments.

Last month’s annual trading update from Forth indicated that 2007 was a good year. The next few years should see a marked pickup in business, not least from Tilbury, where the Olympic Games and plans for hundreds of thousands of new homes in the Thames Gateway will ratchet up the transport of materials by sea. Meanwhile, Forth is sitting on 450 acres of land ripe largely for development into housing, valued a year ago at £400 million. In September the company submitted the biggest planning application in Edinburgh’s history for the regeneration of Leith Docks, with scope for 16,000 homes.

Shares in Forth surged yesterday 152p to £20.90, valuing the equity at about £950 million, or 12 times forecast headline earnings for next year. ABP, P&O and PD Ports all sold on multiples of between 14.5 and 15.5 times expected earnings.

With Forth offering a dividend yield of over 2 per cent, business growth on the horizon and a likely bid battle, there are still gains to be had for buyers.

N Brown

Postal strikes have tripped up N Brown in the past, so it was reassuring to learn from yesterday’s second-half update from the home shopping retailer that it had come through October’s disruption at Royal Mail unscathed.

The bigger relief, however, reflected in a 16 per cent surge in the shares, lay in the extent to which the company’s niche strategy (predominantly a focus on older, larger, women) and online presence is insulating it from the sector’s wider ills. Like-for-like sales were up 14 per cent in the 20 weeks to January 6, marking an acceleration from the 11.1 per cent reported at October’s half-year results and implying growth of more than 15 per cent over the ensuing weeks. That is especially impressive given that N Brown faced tough double-digit comparatives.

Nor has such sales strength come at the cost of gross margin. This was 0.5 percentage points below last year’s level, but that was thanks to effects related to a change in the mix of customers and products and was much as expected. N Brown is benefiting both from existing customers shopping more frequently and spending more, and a successful marketing campaign to pull in new customers - sales from whom were up 30 per cent over the second half. Online sales also continue to accelerate, rising 48 per cent in the second half, against 40 per cent in the first. That 28 per cent of total sales are drawn through the internet also bodes well for longer-term operating costs.

If there are concerns, they are twofold. First, a drive to pull in new customers, although benefiting next year’s bottom line, will constrain short-term profitability. Secondly, over the longer term, there is scope for bad debts to worsen – the company indicated that they have crept up to about 6 per cent, in line with its expectations – given that the consumer arguably has yet to feel the full effects of the credit crunch.

But those complaints are minor. At 243¼p, or 12 times current-year earnings, falling to ten times for the 12 months to February 28, 2009, N Brown is reasonably priced given forecast earnings growth of 10 per cent. Hold on.

SDL

Given what it does, providing language translation software to multinationals, it should come as no surprise that currency is a headache for SDL. With about 40 per cent of its revenues in US dollars – big clients include Adobe, Microsoft and Oracle – but less than 20 per cent of its costs, the 9 per cent slide in the greenback over the past year has wiped about £2 million from 2007 pretax profits. So it is a measure of the company’s strength that it could state yesterday that last year’s numbers would beat forecasts. Tridion, the web content management business, has made a strong debut contribution, while SDL’s technology division continues to prosper. The company’s allure is a dominant position in a consolidating market, which, due to international trade and internet usage, should carry on growing in double digits. At 13 times 2008 earnings, SDL looks cheap at 239¼p, But with directors having sold £5.8 million of stock at 385p in September, only months after a fundraising at 355p, sentiment may remain against it. Avoid.

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