BBA keeps up a cracking pace

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The Independent Online
BBA has been a cracking investment since the arrival of Roberto Quarta as chief executive in November 1993. Since then the shares have outperformed the market by over 45 per cent, but the recent spurt in the share price, now just off its all-time high after rising 18.5p at 416.5p yesterday, seems to have come as the market has woken up to the fact that the group would be relatively unscathed by sterling's recent strength.

The latest interim results to June, showing a healthy 11 per cent rise to pounds 80.2m before exceptionals, confirmed that view. But investors' attention is now likely to turn to how Mr Quarta can maintain the storming pace of his first four years at the helm.

As he freely admits, the 60 per cent growth rate in underlying margins since 1993 is unsustainable. Even so, the apparently modest growth in the latest period was heavily affected by problems with new products launched by Ajax, a maker of specialist metal furnaces. Those should not recur, while Ajax and Haefely Trench, the electrical products operation, may be sold when a review of the operations is completed later this year. That would remove a drag on margins and open the way for further, margin- boosting acquisitions.

Mr Quarta already reckons that, even without further disposals, he has purchasing power of around pounds 200m to add, probably, more bolt-on businesses in developing markets in Asia and Latin America, as well as Europe. A sale of Haefely and Ajax could add as much as pounds 200m more to that firepower, on some analysts' estimates.

Growth has now become the name of the game for BBA and there is plenty to go for. The group is the biggest maker of so-called non-woven textiles, used in everything from nappies and sanitary pads to building industry products. Demand for hygiene products alone is running at 7 to 9 per cent worldwide and is more like 12 to 15 per cent in Asia.

BBA's strong position in servicing the jets used by prestige-seeking US executives has also proved a nice little earner. Organic sales growth of 6.5 per cent in the first half is on a par with non-wovens. The move towards pooling jet use on a "time-share" basis has created a new market which is growing at up to 35 per cent a year.

Even boring old brake pads, the remaining core of the old BBA, managed a chunky 16 per cent sales growth in Germany on the back of new car model programmes. August's pounds 28m acquisition of Becorit in Germany opens up the Europena rail market and its changeover to new technology, while news of a contract to supply the Chrysler's Grand Cherokee Jeep from 1999 adds weight to BBA's plan to take 10 per cent of the US market for car brake pads by 2000.

So growth seems assured and if full-year profits hit pounds 162m, the shares stand on a forward p/e of 17. A firm hold.

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