Bottom Line: Senior success

IN THE midst of a market swamped with rights issues, Senior Engineer's call for pounds 67m yesterday struck a welcome note. In stark contrast with Simon Engineering - asking for pounds 52m - Senior shareholders can only be encouraged by the move.

Senior wants the cash for two very good reasons: it is making acquisitions and it needs additional funds for working capital.

Senior bought Berghofer of Germany for pounds 8.4m and Metal Bellows of the US for pounds 10.2m yesterday. Both will enhance profits at the already successful Flexonics, Senior's flexible tubing manufacturer. Flexible tubing is attractive as many products are specifically designed for end-users, giving Senior wide profit margins.

In addition, the components made are finding expanding demand. Senior is particularly encouraged by possiblilities in the automotive industry.

Indeed Senior is being so successful it needs more money to fund operations - the second justification for the rights issue.

Profits from Senior's engineered products division, which includes Flexonics, rose by 53 per cent in 1993. Operating profit margins from this division also improved from 5.3 to 6.3 per cent.

It paid dollars 40m for Flexonics in 1992 and since then operating profit has grown from dollars 5.5m to dollars 7.5m. The prices paid for Berghofer and Metal Bellows look similarly attractive. The cash call will also strengthen the balance sheet. At 45 per cent Senior is not over-indebted but bringing that figure down to 30 per cent will allow room for further expansion.

Senior shares fell 8p yesterday to 133p - 3p beneath the ex-rights price as the market slid. Shares, trading at a discount to the sector and yielding a not unreasonale 3.4 per cent, are good value. Subscribe.

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