WRAITH (WRT)

Previous Stock Tip

These companies are all previous recommendations from the Red Hot Portfolio that I have subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations I am making now, just start your no obligation trial!

WRAITH (WRT): Bid nets a 17% gain - Jan 2007

RHPS Recommendation - ACCEPT OFFER

Holders of 85% of Wraith shares have accepted a bid of 105p from a private equity vehicle, TDR. Although I am a bit miffed because this has deprived us of a nice growth story, the bid gave us a nice 17% gain from my tip last May. Accept the 105p offer, which you will receive free of any trading expenses.

WRAITH (WRT): A record month - Nov 2006

RHPS Recommendation - BUY

With the share price dipping I contacted David Wraith, who told me that everything is going fine and that September had been a record month. I understand that there is one seller in the market and this is overhanging the share price. I am confident that, once this is out of the way, the shares will rally. So BUY

WRAITH (WRT): Planning new pre-fab’s near Ross-on-Wye - Sep 2006

RHPS Recommendation - BUY

This modular and pre-fab building supplier has reported 33% organic growth in its full first year as a quoted company. Including the contribution of acquisitions, turnover grew by 51%. There was a slight increase in the gross margin, but after a steep rise in administrative expenses, earnings per share came n at 4.17p. Wraith reports strong growth for its modular buildings, despite “lumpy and inconsistent” trading conditions, and the newly acquired kitchen rental division made a small loss as it invested for growth. The outlook for both these activities looks good, with the building industry still busy, and kitchen rental rival PKL in some difficulties.

Next year the real boost for the shares could come from the office development activity. Wraith is building an office block at Chepstow using modular building techniques (i.e. factory built and assembled on-site). It is already seeing good interest from potential tenants ahead of its opening next April. Wraith is also sizing up a second project near Ross-on-Wye. The shares are not easy to trade, as City interest has yet to pick up. But the office development activity offers clear potential for next year. So BUY

WRAITH (WRT): Target 50% gains inside 12 months with this unique building company - May 2006

RHPS Recommendation - BUY

Next time you are out on the moors with your shotgun, don’t be surprised if you are accompanied by a large portable fridge. Government regulations mean that pheasants or grouse or deer must be quickly popped into a refrigerator if you plan to sell them.

And the fridge may well be supplied by Wraith plc. It supplies modular and portable buildings and units. It is taking an increasing share of a market now growing by about 7% per year.

To find out more about it, I drove through the flat lands of Lincolnshire to Torksey, Wraith’s head office and one of its seven depots. And proving that the best advertisement for a product is to use it yourself, executive chairman David Wraith greeted me in his office, on the top storey of a stack of portable cabins.

David has already enjoyed considerable success.

He has built up two portable accommodation businesses, the first sold to Godfrey Davis (Holdings) in 1984 and the second sold to G.E. Capital in 1997, as well as a powered-access company that was sold to Lavendon Group.

Plain talk from a successful businessman

This straight-talking north countryman has one of the attributes I always like in a businessman – the ability to instantly reel off figures on cost, profit margins and return on capital. And his conversation is jargon-free. “The construction industry,” he told me, “has had the habit of going tits up every few years. But now it looks really well set.”

His view is confirmed by the latest quarterly survey from the Royal Institute of Chartered Surveyors (RICS). Referring to the busy housing and commercial property markets, as well as government spending on schools, hospitals and the looming Olympic Games project, it says that next year is “looking rosy”.

So Wraith has every chance to improve upon a record that has seen its turnover and profit soar from £4.2m and £0.2m respectively in 2001 to a forecast £20m and £1.5m in 2005/6. Before it joined London’s AIM market in March last year, in fact, this record took it to No.17 in The Sunday Times Virgin Atlantic Fast Track list of fastest growing unquoted companies.

Such growth is due to more than just barmy government regulations and a buoyant construction industry which is increasingly looking to outsource requirements for temporary structures. But portable accommodation has moved on from the simple cabin on a building site. The units are more sophisticated, and this widens their applications and makes them a genuine alternative to traditionally built permanent structures.

These units can now meet the hygiene demands of the health sector, they can be clad with a brick skin or Siberian larch cladding, and come with a sloping roof. Swapping timber frame construction for steel frames improves durability and security. Built off-site, these structures now provide semi-permanent accommodation for schools, hospitals and local authorities, as well as the type of clubhouse used at 6-a-side soccer centres.

Beating the competition on service and extras

Overall Wraith has a 3% share of the UK market. Some 41% of its 900 customers come from the construction industry, and 27% from the education sector. There are six larger players in the market, including Portakabin and Speedy Hire. But Wraith has grown its share by providing reliable delivery, supplying bespoke units rather than reconditioned shipping containers, and adding small touches such as painting units in the customer’s livery.

Wraith has grown organically but it’s also made smart acquisitions. Last September it bought Bowood Event Hire. With a fleet of 1,000 units, this will allow it to merge Bowood’s Coventry depot and its existing Tamworth depot onto a new 4.7 acre site in Wolverhampton. In February this year it bought Gamble Kitchen Rental, which supplies temporary kitchens for events such as the Cheltenham Festival, the British Grand Prix and the Ryder Cup. “There’s some money in this,” says David Wraith. Around 43,000 lunches are prepared at Cheltenham, and with guests paying up to £250 for the privilege, Wraith reckons that the kitchen supplier it’s just bought should be getting more than its £100,000 fee.

About half of Wraith’s turnover comes from its rental division, which now has a total fleet of 8,500. It buys units costing £5,000 to £12,000 each on hire purchase from a number of the country’s 25 manufacturers. Then it rents them out. Today, Wraith is achieving its target utilisation rate of around 80%. That’s enough to earn a return on capital of about 40%.

“We could double our money”

What’s more, the steel units are depreciated in the company accounts over 12.5 years, reaching a residual value in the books of 35%. But in fact they last much longer, for up to 25 years. So the official numbers don’t give the full story. The balance of turnover comes from selling used units, plus Wraith’s range of modular buildings which can be either bought or hired.

Crucial is Wraith’s design and project management capability, and its ability to fit out units with carpets, furniture, and IT cabling. The growing sophistication of modular buildings explains December’s decision to acquire Office Space Limited for £150,000. This little firm comes with a management contract to operate Singleton Court, a 40,000 sq ft office in Monmouth. But it also has plans to provide serviced office accommodation throughout Wales and the West of England.

The attraction for Wraith is that these office suites can be modular buildings, constructed cheaply off-site, and simply bolted together. In February Office Space secured a freehold site in Chepstow for £312,500. At a cost of £4m it will build 25,000 sq ft of office space.

This should be completed by the end of the year. Assuming that it can be rented out at £30 per sq ft – and banking on an investment yield of 6% – this would be worth £12.5m. So it was no surprise for me to hear David Wraith say “We could double our money,” and enthuse about the potential for similar projects.

Taking this into account, Wraith’s market value of £24m no longer looks high in relation to forecast profits for the year to March 2006 of £1.5m. In any case, Wraith is growing fast. It aims to increase its fleet to 15,000 and grow its market share to 5%. The plan is to build a business worth £100m. Given the men behind the company, I would rather bet with them than against them.

RHPS Verdict: Although the portable accommodation business is competitive Wraith clearly has a successful formula. Its use of modular buildings in property developments is really exciting. Take note, however. David Wraith holds 8.5% of the shares. His son and managing director Jonathan holds another 10.9%. Lord Ashcroft owns a further 40.3% of Wraith. So the stock is tightly held, and the bid/offer spread in the market is wide. But these shares are well worth getting hold of. Place your limit order with your broker, be patient, and buy up to my limit of 100p. BUY

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The figures refer to the past and past performance is not a reliable indicator of future results. The past recommendation highlighted here is a small company share.By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. These figures do not include the bid-offer spread, unless otherwise stated. Since the service began on 01/12/98 running through to 31/07/07, the average overall performance of the shares recommended is up 19.91%.All gains exclude dividend payments and dealing costs, unless otherwise stated. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances. Full portfolio available on request. Fleet Street Publications Ltd is authorised and regulated by the Financial Services Authority. FSA No. 115234.

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