The stock market, fully aware that the pounds 500m Dowty purchase was at least a year too soon, is now giving TI the benefit of the doubt. After a decidedly rocky start to 1993 TI shares, up another 7p to 358p yesterday, are on a chunky premium rating.
Following a 12 per cent fall in interim earnings, forecasts for the current year are around pounds 128m, which puts TI on a prospective p/e of almost 20 and a yield, in the wake of a 4 per cent half-time uplift, of 3.9 per cent.
A performance like that of Bundy and John Crane arguably deserves a premium rating. But the market is also factoring an eventual strong pick-up at Dowty.
The elusive upturn in demand for spares on existing aircraft, coupled with the potential demand from the increasing number of new aircraft carrying Dowty products, will have a big impact on profits, but maybe not until 1995 or 1996.
Meanwhile, cash flow is in the comfortingly tight grip of the finance director, Brian Walsh, who is ex-GKN. There was a slight outflow of pounds 4m in the first half but the first sale in a pounds 100m disposal programme should appear soon and take TI to its target of no net debt by the end of 1994, excluding exchange rate effects.
TI has spent pounds 19m so far on reorganising Dowty, with no visible results on the profit line, and has another pounds 20m or so to go. Margins could double at Dowty Aerospace in a couple of years and this justifies the premium rating.