Bottom Line: Senior shows the sceptics

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The Independent Online
SENIOR Engineering seems doomed to be perennially out of fashion. It spent most of the go-go 1980s being pilloried for its lack of excitement. Now the City seems to think that, having shrugged off the recession, there's little scope for recovery.

Yesterday's better than expected figures suggest that Senior will continue to provide investors with pleasant surprises. Anyone who took up last year's rights at 58p will be more than pleased with the shares' progress to the current 91p.

Headline pre-tax profits for 1992 collapsed from pounds 18.3m to pounds 6.36m. But stripping out the exceptional cost of withdrawing from mining equipment (an eminently sensible decision), underlying profits on continuing operations were 25 per cent ahead. The dividend was pushed up accordingly from 3.02p to 3.15p.

Almost all the increase came from Flexonics, last year's US acquisition which enhanced earnings in its first 10 months in the group, took Senior deeper into the recovering US market and introduced a range of products in growing areas.

These include connectors for catalytic convertors, which have attracted contracts from Ford and General Motors, and heat exchangers for the treatment of blood in hospitals. Other contracts include a deal with Lockheed to replace air-ducts on transport planes.

Flexonics is nicely diversified, in good markets, and undoubtedly came cheap. Senior paid just pounds 26m for a company which made nearly pounds 4m last year, taking advantage of a private vendor who could not afford to expand.

Elsewhere, the mis-named construction division continues to benefit from its exposure to specialised projects like the power station at Sizewell and a building contract with Glaxo.

With 30 per cent of Senior's turnover in the US, the sceptics who see no recovery potential should soon be proved wrong. Expect profits this year of pounds 22.5m and earnings of 6.8p implying an undemanding prospective P/E of 14. Buy the shares.