Seven defensive growth stocks

Because Mouchel's end markets are the public sector and regulated industries it should be insulated from the impact of the credit crunch on the economy. What's more, business is flooding in. The group's order book currently stands at £2.3bn with a £2.1bn bid pipeline. So brokers are forecasting three years of very strong mid-teen or better earnings growth.

The group has been capitalising on a number of great prospects in its highways business recently, but probably the most exciting area for Mouchel at the moment is the business process outsourcing (BPO) market. Its acquisition of HBS last year moved it into the BPO market, which is estimated to be worth £4bn and is growing at 10 per cent a year. Local authorities with BPO needs are increasingly looking towards the big players in the market to fulfill wide-ranging "bundled services" contracts, and that plays into Mouchel's hands.

Spice's performance since it floated in 2004 has certainly been hot. The group concentrates on performing small but essential maintenance jobs for the public sector and regulated industry. Over recent years, through a series of acquisitions, it has been moving towards becoming a complete end-to-end utility outsourcing company. It's most recent deal, the acquisition of Revenue Assurance Services, has bought it a strong position in the billings market which provides a number of cross-selling opportunities. Meanwhile, its energy business, which sources and manages energy for corporate clients, has been performing particularly well recently, as has its electricity business.

Where there's muck there's brass: Shanks and Pennon

The waste-management industry offers many similar defensive attractions to those boasted by the utilities sector but with even better growth prospects. The growth potential is due to the EU Landfill directive which is forcing councils to send less rubbish to dumps and instead pay more for environmentally friendlier waste disposal. Waste management companies are benefiting from this change in two ways. First, they are winning more higher-value work, which the larger listed-players capable of investing in green technology are particularly well placed to benefit from. Secondly, companies that own landfill sites are seeing the value of these dumps rise rapidly because, while government has pretty much stopped approving new sites, waste-disposal methods have not kept pace. In fact, the attractions of defensive growth from waste has got cash-flush infrastructure funds sniffing around and Biffa, one of the sector's leading players, has recently received a recommended takeover offer from private equity bidders despite the dire conditions in the credit markets.

Shanks looks well positioned to benefit from the changes that are afoot in the UK waste market. While it may lack the landfill assets that made Biffa such an attractive prospect for infrastructure players, it knows all about the methods and technology needed to dispose of waste in greener ways. Indeed, half of its business is in the Netherlands, a country that could teach the UK a thing or two about how to get rid of its rubbish. Shanks already has three Mechanical Biological Treatment (MBT) facilities operating in the UK, and with the government estimating that £11bn needs to be spent bringing the UK's waste disposal infrastructure up to scratch, it may not be long until Shanks has many more MBT facilities on the go. Still, PFI contracts in this sector have been slow to be awarded. But while that means short-term prospects could be a bit dull, the long-term story is exciting.

Pennon is above all a utility company, but a utility with some waste-related spice. While the group's well run water business continues to reliably haul in the cash, its waste business, Viridor, provides the excitement. Indeed, at the half-year stage Virdor's operating profits were 24 per cent ahead at £27m while Pennon's South West Water business reported a convincing 15 per cent rise to £97m.

The waste business has the advantage of holding landfill assets which are rising in value as supply falls. And the operation has recently won a major PFI waste contract in Manchester with Laing. With plenty of predatory infrastructure investors eying both the secure income streams from water companies and growing defensive income from waste, Pennon looks like an attractive package for potential bidders. This is, however, somewhat reflected in the price, but Pennon boasts many attributes that are worth paying up for.

Make money from others' misery: Debts.co.uk and Begbies Traynor

One area that actually stands to benefit from worsening economic conditions and a more restrictive lending environment created by the banking crisis are companies that deal with insolvencies. Indeed, given the massive levels of consumer indebtedness in the UK it may not even take that much of a slowdown to create a surge in demand for individual voluntary arrangements (IVAs). What's more, the IVA industry, which helps individuals avoid bankruptcy by agreeing payment plans, has resolved a stand-off with the high street banks which hampered growth last year. While the new agreement with banks will knock IVA firms' profitability, they will at least be able to take on more new work. And problems for consumers are likely to quickly translate into problems for businesses, especially vulnerable small to medium sized operations that lack the financial clout to insulate themselves from stormy economic weather.

Debts.co.uk describes itself as a debt counsellor which means it does more than simply arrange IVAs. Indeed, as well as setting up IVAs it organises debt management programs, gives bankruptcy advice and arranges secured loans. It also provides Scottish Trust Deeds, which is Scotland's equivalent to an IVA. And this business has not been hit by the ructions with banks south of the border.

Nevertheless, the feud between IVA companies and banks has hit business for Debts.co.uk and the agreement on business terms that ended the impasse will squeeze IVA providers' margins. However, the benefit of the new deal is that banks should now approve the IVA proposals put forward by Debts.co.uk, which need to get the go ahead from 75 per cent of the creditors concerned. So, while broker Seymour Pierce expects profits before tax to drop from £3.4m last year to £2.2m in the year to the end of July 2008, they are expected to pick up to £3.7m come 2009.

Begbies is a corporate insolvency practitioner focused on smaller and medium-sized companies. The days of easy credit have not been kind to Begbies, as many businesses have been able to refinance and stay afloat when they would have faltered in more impecunious times. Indeed, last December the group had to issue a profit warning.

But Begbies made the bold decision not to cut back on staff during this leaner spell in anticipation of business picking up when the economic climate changed. And if the group's latest "Red Flag" survey, which identifies businesses on the brink of trouble, is anything to go by then there is plenty of work on the horizon. But following recent disappointments the shares are well down their year high of 182p. And while a price equivalent to 23 times forecast earnings may seem steep now, that could all look very different if serious economic gloom descends.

Green gold: Eaga

The green agenda is being enforced by a barrage of regulation from both the UK and EU. So businesses increasingly have no choice but to pay up and comply with rules to make them more environmentally friendly. While the fortunes of many companies in this field are linked to energy and commodity prices this is not always the case. Indeed, for those businesses that can tap into sources of green funding from government the future looks very bright with or without record oil prices. And with eco-friendly policies high up the political agenda, green services are likely to stay in demand.

Eaga is the UK’s leading supplier of energy efficiency solutions and, its services have never been in more demand. The company is contracted to deliver the government's "Warm Front Scheme" which is aimed at lifting vulnerable people out of fuel poverty. The scheme will be worth £800m over the next three fiscal years and Eaga holds its contract until 2010 with an optional two year extension. The government is also putting pressure on utilities to promote energy efficiency through tough new targets on carbon emissions. The easiest way for energy companies to hit these targets is by paying customers to make energy efficiency savings in their homes and Eaga has either signed contracts, or expects to sign contracts shortly, with all the UK's major power suppliers to help them deliver this. The group also has interesting prospects in the social housing market where it makes around £14m of annualised turnover.