Big spending pays off for Laird

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The Independent Online
Laird Group's attempts to diversify away from the automotive market have been increasingly successful. Non-automotive profits, derived from activities ranging from computer bodies to door and window parts, have risen from 22 per cent in 1992 to 40 per cent last year.

But Laird remains heavily wedded to the fortunes of the European car industry, which is just as well in the light of last year's revival in the market. That played a big role in enabling the group to announce record pre-tax profits of £47.7m in the 12 months to December yesterday.

The figure was comfortably ahead of the £46m forecast made at the time of November's £68m rights issue. It compares with profits of £38.2m for the previous year and the underlying picture is even better, given the flattering effect on the 1993 results of a £5.1m credit from patent litigation.

Despite the boost from the market, shareholders who supported the cash call can take comfort that management, now led by chief executive Ian Arnott, had a hand in producing last year's record profits. Laird was only able to capitalise on the bounce in European car volumes as a result of a heavy capital investment programme that has seen £160m spentover the past five years, including £37.8m in 1994.

Of three large projects totalling £25m under way, two should be contributing to profits this year. The Spanish operation to make seals for the new Volkswagen Polo is "going very well", according to Mr Arnott, with an expansion due onstream by June.

Fullarton in the US - a carbon copy of the company's successful Scottish computer parts operation - is already in profit after an August start. Production should double by next year.

The only blot was the delayed launch of a new Skoda model, which held back the start of new capacity for seals in the Czech Republic. But that should break even this year.

The hefty capital spend led to a cash outflow of nearly £24m last year, of which £4m was at the trading level. But the rights call left net cash of £20.6m at the year-end, of which £7m has since been spent on a Spanish acquisition.

Earnings per share rose from 20.7p to 26.3p. Although they remain short of the 28.5p they reached at their peak in the late 1980s, Sandy Morris of NatWest Securities believes that is within sight in the current year, based on his unchanged profit forecast of £61m. The outlook remains heavily dependent on the car market, which Mr Arnott warns could soften this year, although not significantly.

The shares, up 8p to 344p yesterday, stand on a prospective price-earnings ratio of 12. That looks reasonable value, given the quality of the company.

The profits of prudence

An investment of £1,000 in Hewden-Stuart shares 20 years ago would be worth more than £28,000 now - even if you had spent the dividends as they were paid. With the income reinvested, the plant hirer would have been a stupendous investment over the past two decades.

Sir Matthew Goodwin, former grandee of the Scottish Tory party and one of the most astute businessmen around, bows out at the next annual meeting, and he will be pleased to do so on the back of another stunning set of results.

Pre-tax profits in the year to January rose 82 per cent to £34.8m from a 30 per cent increase in sales. After a 50 per cent jump in earnings per share, the dividend, which has been increased 47 times since 1968, was raised a prudent 15 per cent to 3.325p.

It is becoming a familiar refrain, but Hewden continues to benefit from its brave decision during the recession to carry on investing heavily in plant when the rest of the industry was hoping to ride out the storm by cutting back on capital expenditure.

As a result of spending £120m in the last two years, a quarter of Hewden's fleet of construction equipment and cranes is now less than a year old.

That gives it a huge advantage over competitors which have been spending at nothing like that rate and are subsequently lumbered with ageing fleets just as demand is rising.

Interestingly, that demand is not just the result of improving markets - in fact some statistics suggest that the construction market in the UK is actually in fairly sharp decline thanks to government spending cuts in the roads programme. It is more a result of businesses, from Shell to ICI to the small local housebuilder, tending to rent equipment rather than buy at a time when markets are so uncertain.

But the strength of Hewden, and why its shares have performed so well over the years, is its financial prudence. All the heavy capital spending of the past two years has been funded from cash flow and even after the shopping spree borrowings are a negligible £800,000.

New plant is always paid for with cash, ensuring better prices, and it is depreciated from day one, in contrast to the many less careful companies that have paid the price through the building slump.

The shares, up 6p yesterday to 169p, stand on a prospective p/e multiple of 13. Given the quality of Hewden's earnings that is good value.

Vision is one

for the brave

Despite the chequered history of high-technology companies venturing onto the stock market, they keep on coming.

The latest, which looks no safer than the others, is Vision Group, formed in 1990 to exploit miniature camera technology developed at Edinburgh University. The basis of the technology is a video camera embedded on a microchip.

Vision is offering 5.15 million shares - 16.7 per cent of the equity - at 97p, raising £4.5m. The placing will capitalise the company at £30m, which is a rich price, given the track record.

Pre-tax profits of £93,000 in 1992 were followed by losses in the two subsequent years. Losses in the first six months of the year to January were £638,000, which compares with a deficit of £722,000 for the whole of1993-94.

Vision's board sports some big names from the past. James Millar, the head of the retailer Wm Low until its takeover by Tesco last year, sits in the chair and Hermann Hauser, co-founder of Acorn Computer, is also a director.

Donnelly Corporation, a US automotive components maker, has a minority stake and there are hopes the camera has uses in cars and toys. But this issue is only for the brave.