Bottom Line: Japan delivers for Unitech

UNITECH'S sparky 88 per cent increase in pre-tax profits, to pounds 19.8m in the year to 31 May, was well ahead of market expectations. Pleasantly surprised analysts promptly upgraded their forecasts for the current year by about pounds 7m to an average of pounds 29m.

It was Nemic-Lamda, the company's 50.6 per cent Japanese power supplies subsidiary, that beat all predictions. Its sales rose 13 per cent year on year and profit margins rose sharply. The value of Unitech's stake has soared to pounds 405m at the year-end from pounds 288m a year earlier.

Peter Curry, Unitech's chairman, said the improvement was down to structural trends rather than any cyclical upturn in the Japanese economy. The strong yen meant that Nemic-Lamda's Japanese customers had begun to build new capacity offshore, increasing demand for power supplies components. The semi-conductor industry, to which Nemic is a big supplier, was increasing its capacity; and some of Nemic's weaker domestic competitors had been withdrawing, raising its market share.

Nemic-Lamda is forecasting a 12 per cent increase in sales this year. With an eye on the long term, it has set up a small manufacturing operation in Shanghai. China's local content rules mean that foreign companies investing there will need suppliers on hand.

The group's other divisions performed in line with expectations.

Control Products, which supplies heating and ventilation components, saw a strong improvement in sales and profits. The connectors division, which sells to the European car industry as well as the semi-conductor and telecommunications industries, made a pounds 0.5m loss for the year but moved into profit in the second half.

The benefits of Unitech's cost- cutting during recession are in evidence now that its markets are recovering, while the Nemic-Lamda stake is now worth nearly twice the group's UK market capitalisation.

The shares closed 20p higher at 348p. On a forward multiple of just over 18, they still look good value.