A professional investor tells MoneyWeek where he'd put his money now. This week: Mark Searle, director of Invesco Perpetual European Investment Trust and Regent Pacific Group.
One of my favourite stocks is Patientline (PTL). It has established a dominant position in the UK healthcare sector for providing patient communication systems within the NHS. It currently has more than 55% of the potential market sewn up and has little real competition as the Government rushes to ensure that all hospital beds have access to a bedside communication system.
Over the past few years, Patientline has been aggressively rolling out its terminals - there are now 65,000 in 135 hospitals. This has been a cash-intensive process, but the pace of rollout will be halved in the next financial year. This focus on cash generation bodes well for reported financial results going forward. The firm earns around £2 revenue per terminal per day from telephone links (mobiles are still banned in wards) and TV entertainment.
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However, revenue per terminal has the potential to rise further as hospitals begin to use the system for ordering food, patient registration and eventually for patient records. The company has also piloted the terminals in the US, where it enjoys a strong association with General Electric, and has a well established Dutch subsidiary. The model differs in the US in that Patientline provides no funding: revenues and profits are earned from day one. The City has not yet ascribed much value to the US potential, but I think the stock offers good value as it approaches the pay-off stage.
Pursuit Dynamics (PDX), with a current market value of only £90m, offers huge upside potential if it can capitalise on its unique PDX platform technology. This heats, mixes and pumps liquids, simultaneously cutting cooking/mixing times by up to 95% and cleaning time by up to 80%. The technology has applications across a variety of industries, including food and drink, brewing and paper. The rollout of the first product, the PDX Sonic 25, aimed at the food and soft drinks industry, will take place this month. The shares have had a good run on the back of signing an agreement with Coca-Cola Enterprises, the UK subsidiary of Coca-Cola Enterprises Inc, the world's largest marketer, manufacturer and bottler of the Coca-Cola brands. I expect more deals to be announced in 2005 as new agreements are signed.
When it comes to banking, the most attractive markets are currently in Asia. Asian economies have relatively high rates of GDP growth, which can be expected to lead to strong loan growth, particularly in underpenetrated markets. India is a case in point - consensus GDP forecasts point to 6% to 7% annual growth going forward. The State Bank of India (SBIq.L) is the largest bank in India and is currently experiencing loan growth in excess of 20% a year, as well as stable margins and improving credit quality. It is also generating a return on equity of 18%, yet the locally listed shares trade at a mere 6.8 times 2005 earnings and 1.2 times their book value. Long term, the banking industry in India will also benefit from consolidation, although political interference may delay the process. The shares must be bought through a Global Depository Receipt if you are not resident in India, so remember that this represents a premium to the price of the local stock.
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