Engineering service group Kentz (KENZ) has seen its profits rise by 190% since 2008, the year in which it floated on the stock market. Today's full-year results beat expectations, helping to put some wind beneath the shares after a relatively flat period over the past six months. The oil-to-mining specialist advanced 3.4% to 428.8p.

Pre-tax profit in 2012 grew by 32% to $104.8 million against forecasts for $96.6 million. Its backlog - secured work yet to be carried out - has risen by 7.1% to $2.57 billion, offering good visibility on forward revenues. (Right-click to enlarge the following chart and open in a separate window/tab)

KENZ - Comparison Line Chart (Rebased to first)

Investors will be annoyed that the share has stalled of late, given that the business has continued to expand. We believe the £504 million cap may have been a victim of fluctuating sentiment towards the wider sector. Based on consensus forecast 2013 earnings per share of 48.8p, which would imply EPS growth of 24% this year, the shares trade on a forward price/earnings ratio of 8.8 against an average for the sector of. The potential for future growth is reflected in a pipeline of prospects worth $13.2 billion.

Investec analyst Keith Morris, who has a 'buy' rating on the stock and a target price of 600p, says: 'With a strong order book from key blue chip customers, a low contract risk profile and an exceptionally-strong balance sheet, Kentz looks positioned to deliver double digit earnings growth in 2013 which potentially could be enhanced by acquisitions. Despite this positive track record and outlook, the valuation remains attractive.'

Oriel Securities, which is also a buyer of the stock, echoed this positive view and points to the 'potential for a material earnings-enhancing acquisition'. With a gross cash balance of $223.3 million, Kentz should be well placed to boost its organic prospects through takeover activity while maintaining its commitment to rewarding shareholders.

A total 2012 dividend of 14.5 cents means the payout has increased 154.4% on the group's maiden full-year dividend for 2008 (which totalled 5.7 cents a share). A forecast 2013 dividend per share of 10p implying a prospective yield of 2.3%.

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Issue Date: 25 Mar 2013