One to watch: Grounds for optimism

ALUMASC supplies building and precision engineering products. The firm has two segments: the building division, including interior casing systems, housebuilding products and scaffolding, and the engineering division, which includes precision engineering and drinks dispensers.

Alumasc has had a rough time of it over the past couple of years, the latest trading statement confirming a 47 per cent fall in first-half profits, although the group maintained its dividend. Encouragingly, net debt fell to 2.2 million from 10.8m.

The firm has detected signs of stability returning to its core markets and has also reduced costs significantly. This should offer scope for appreciable operational gains as and when this trend extends. There are grounds for further optimism. Housebuilding markets in the US seem to be improving as architects focus on "green construction", but this is helping to offset a rather more sluggish trading environment in the UK. The company is also keen to develop opportunities in both Europe and the Middle East. The engineering division should break even in the current year; certainly, the group reported a growing level of inquiries. One particular benefit has been the transferring of some manufacturing capacity to China, which has substantially reduced production costs.

Overall gearing is now down to 29 per cent, which suggests that the dividend yield of about 10 per cent is not a mirage; the company is unlikely to be required to cut its payment even if cover for the payment becomes a little bald. The shares have been trading in a fairly narrow band for some time but do appear to offer attractions on income grounds and on continuing recovery prospects.

The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.

Cobham

254.6p +1.9p

Broker says ACCUMULATE

CHARLES Stanley says the outlook for 2010 at aerospace and defence systems group Cobham is "optimistic".

"Proactive cost control and efficiency benefits underpin good margin growth at the operating level and cash conversion remains ahead of the medium-term target," the broker said.

Royal Dutch Shell

1,957.5p +21p

Broker says REDUCE

EVOLUTION Securities says Royal Dutch Shell's strategy to 2012 is "compelling" but warns it needs to complete key projects to drive its recovery. The broker says the oil giant is dependent on a "positive macro environment" to keep short-term gearing under control before underlying performance can assert itself in 2012.