Bottom Line: Don't pass up Devro

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The Independent Online
DEVRO looks more attractive than its product - sausage casings made from an edible protein called collagen.

Institutional investors are keen on the shares and will mop up any unwanted ones from the 28 million being offered to the public.

The company, despite embarrassment over paying off its chief executive before he even arrived, has a lot of upside.

Besides being a niche operator, it is fairly well shielded from new competition by a high-tech cum high-cost barrier of entry to its market. Testament to that is its 56 per cent share of the world market for collagen casings less than 30mm in diameter.

It makes more than 150 collagen products, a solid base that is being progressively expanded as an alternative wrapping for other food, especially meats.

Sales of pounds 73m in 1990 rose to pounds 76.5m a year later and to pounds 82.7m in 1992. Operating profits in those years were pounds 16.2m, pounds 17.6m and pounds 22.1m. And underscoring the numbers for 1992 is the generation of pounds 25m of net cash.

Analysts expect Devro to make about pounds 26m for the current year, giving earnings per share of 13.6p. The prospective p/e on the 170p issue price is slightly above the sector average at 12.5.

Devro is set to go to a premium, and private investors should not let the issue be wrapped up by the institutions.