A move back into profit for rail services group Jarvis prompted Michael Parkinson at Brewin Dolphin to nearly double his price target from 17p to 30p. The analyst’s prediction happened sooner than expected as Jarvis smashed through the revised price level the day after the forecast revision. On Monday, the shares broke through the 40p barrier as investors continue to speculate over a sale of the business.

Parkinson’s upgrade from ‘hold’ to ‘buy’ on 28 May was a good call. Full-year results last week were ahead of his forecast after better profits in the second half of the financial year, boosted by higher than expected rail revenue. ‘There is clearly scope to increase our target price over time,’ said Parkinson in the original research note. The analyst did just this on Monday with a new 12-month goal of 36p, although downgrading the stock back to ‘hold’ to reflect the recent share price appreciation.

Jarvis made £4.5 million profit in 2007 against a £13.1 million loss in 2006. Net debt may have expanded from £23.6 million to £38.8 million, but the company is clearly in recovery mode. Rail revenue grew by 45% and central overheads were cut by 38%.

Market rumours suggest that Jarvis’s new-found financial strength could be a precursor to a sale of the business, which explains the recent sharp rise in the share price. Jarvis said in mid-May that it wasn’t in talks over a sale, but admitted that the strategy was among several options under consideration.

Parkinson is looking for £13.5 million EBITA in 2009. ‘[This is] below the run rate achieved in the second half of 2008, giving us comfort that forecasts could still be prudent,’ he says.

by Dan Coatsworth