Bottom Line: Bowthorpe's strategy vindicated by events

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The Independent Online
By rights, Bowthorpe should not work. A mish-mash of businesses from cable ties to pollution-measuring instruments are scattered around the world. Operations have loads of autonomy while a few jugglers at head office keep all the balls in the air. Textbook stuff it might not be, but yesterday's final figures suggest that Bowthorpe is the exception to prove the rule.

On turnover 20 per cent higher at pounds 265m, pre-tax profits rose 6 per cent to pounds 42.7m and earnings, helped by a lower tax charge, were a tenth better at 15.4p. The dividend grew almost twice as fast as inflation to 6.36p.

It is a solid result - they have been throughout the recession - which vindicates Bowthorpe's strategy of targeting niche component businesses and spreading risk.

That means that an expected 20 per cent fall in the German automotive market this year is a nuisance rather than a disaster. To balance that, the US computer industry is picking up nicely, with sales of personal computers running 20 per cent ahead of last year.

And, while consumer durables are wilting in Europe, the German construction industry is still busy building houses in the east. Group-wide the construction industry, Bowthorpe's biggest individual market, only accounts for 13 per cent of sales.

When Bowthorpe talks about niches it is not just a glib throwaway. None of its markets exceeds pounds 800m a year worldwide, and many are worth less than pounds 250m. That keeps the big boys out. Shunning commodity products and focusing on areas with patent protection and needing lots of technical knowhow means Bowthorpe can be one of the top three players in all its businesses. Margins are enviable.

Looking ahead, earnings should grow at about 12 per cent a year for the foreseeable future. Partly that is thanks to cyclical recovery. More important is a continual process of selling businesses in mature areas and shifting the focus to fast-growing ones.

Instrumentation, for example, boosted last year by the acquisition of Penny & Giles, is growing at 15 per cent a year and could represent a third of sales in a few years. More acquisitions are likely, with gearing a modest 16 per cent and handsome cash generation.

With a third of sales in the US there will also be a nice kicker from currency this year. That should ensure that pre- tax profits top pounds 50m with earnings per share reaching nearly 18p. A prospective p/e of 17 is a slight premium to the rest of the market. But it is a lot cheaper than other electrical component manufacturers and, with good growth in prospect, the shares, even after a strong run, are attractive.

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