A prospect not to be sniffed at
Sunday 03 December 1995
The scale of the opportunity is indicated by the progress of the US multinational International Flavours & Fragrances, a business with sales measured in billions, profit margins around 25 per cent and a share price that has climbed from $6 (pounds 3.80) to more than $50 since 1982.
The UK stock market has a mini-sector in this industry in the form of Borthwicks, Treatt, and CPL Aromas. Treatt, which I have written about before, has been doing well, helped by the success of its Florida facility in supplying essential oils for orange-juice producers. But the UK company most like International Flavours & Fragrances and showing strong growth is CPL Aromas, based in Hertfordshire but with a growing worldwide network of sales offices and factories.
In combination with an excellent set of interim figures, the group has been hosting visits to its new Aromachem factory in Darlington, Yorkshire, a state-of-the-art facility for producing high-value aroma-chemicals for its own use and for sale. Production has begun, but a significant trading contribution is not expected before the next financial year, ending 31 March 1997.
There is great excitement about the potential of the new factory, but the company is growing apace from its established operations. Profits last year (to 31 March 1995) leapt from pounds 1.4m to just over pounds 2m and look poised to climb even faster this year after a better-than-expected 51 per cent rise in interim profits to pounds 1.4m. Growth has continued into the second half so far, suggesting that full-year profits could approach pounds 3m to drop the price/earnings ratio to around 19 at Friday's close of 346p.
That is not startlingly cheap, especially when compared with the historic p/e of 12.7 on which the shares were floated, at 150p, last June. But it does not look unreasonable. The company is winning business all over the world, including some chunky new customers such as the tobacco giant BAT, suggesting sales are going to keep powering ahead. Margins are improving. The co-founder, chair- man and principal shareholder, Terry Pickthall, points to the 25 per cent margins achieved by IF&F, and says he believes CPL should be able to increase its margins from around 11 to 15 per cent. Cautiously, he refuses to put a timetable on the improvement but agrees that it could happen over four to five years, implying a steady 1 per cent a year improvement.
All this suggests a potentially glittering outlook for the group and its shareholders. My hunch is that we could be looking at a sales progression over the next three years of pounds 30m, pounds 40m and pounds 50m, with between pounds 5m and pounds l0m of that from the new Aromachem facility. Even on a 10 per cent margin, that implies profits climbing from pounds 3m to pounds 5m by 1997/98, against the pounds 1m profit achieved in 1991/92. On a maintained 20 times p/e, that would take the shares to over pounds 6; and profits could usefully exceed my projections if the expected progress is made in bumping up margins.
Three Pickthalls on the board make the group unashamedly a family business. But there is a breadth of talent in management that goes well beyond the family. They are ambitious, too. As well as operations in Hong Kong, Germany, India, Brazil and the Pan-Andean Pact countries on the Pacific side of South America, acquisitions have added subsidiaries in France and Switzerland and even a joint venture in Syria.
- 1 Rihanna 'nude pictures' claims emerge on 4Chan as hacking scandal continues
- 2 Kim Kardashian 'nude photos' leaked on 4chan weeks after Jennifer Lawrence scandal
- 3 'F*ck it, I quit': KTVA reporter Charlo Greene quits live on air in spectacular fashion
- 4 What are your fingerprint words?
- 5 Gary Lineker involved in Twitter row after presenter rubbishes claims he will be warned by BBC over foul-mouthed tweets
Rihanna 'nude pictures' claims emerge on 4Chan as hacking scandal continues
Kim Kardashian 'nude photos' leaked on 4chan weeks after Jennifer Lawrence scandal
'F*ck it, I quit': KTVA reporter Charlo Greene quits live on air in spectacular fashion
Jennifer Lawrence: Leaked 4Chan sex video branded 'fake' by users
Jennifer Lawrence 'naked sex video' will be leaked next, threatens 4Chan celebrity photo hacker
Scotland could still declare independence – even without referendum, says Alex Salmond
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
iJobs Money & Business
£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...
£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...