Bottom Line: Triplex is less than convincing

TRIPLEX Lloyd, the foundry business, has won a strong stock market following in recent months. Investors - not always likely to take the long-term view - have supported the management's capital investment-led strategic positioning.

Unfortunately, however, Triplex is finding it difficult to produce results and taxable profits stood still at pounds 7.1m for the third year.

At the operating level automotive contributed pounds 3.7m, the same as last time. The engineering division - which manufactures a host of low-margin widgets - fed in just pounds 763,000, down from pounds 2.1m, and looks to be ripe for disposal if Triplex can get a half-decent price for it.

The power division - which makes parts for aero-engines and gas turbines - made up the ground lost by engineering. Helped by acquisitions, power pushed ahead to pounds 5.5m, up from pounds 4.4m.

Power excites Triplex management the most. Not only does it have some immunity from economic cycles, its high-specification product also generates wide profit margins. Where engineering made 1.6 per cent last year power made more than 8 per cent.

Power is also the main beneficiary of Triplex's investment. Capital expenditure was pounds 9.7m - nearly twice the depreciation charge. Half was in power, and a similar amount will be spent this year.

The yield on the shares, down 4p at 174p, looks attractive at 5 per cent but that is needed to compensate for the prospect of an unchanged payout of 7p for the fourth year running. Earnings are also showing the impact of a series of small share issues to fund investment and bolt-on acquisitions, falling from 10.9p to 9.8p.

The company is expending a lot of money, time and energy to position itself in markets that it believes can produce good returns. But in the meantime the businesses are consuming cash: working capital climbed pounds 5.3m last year and, despite raising pounds 17m in a rights issue in February, borrowings were reduced by only pounds 4.5m.

Mr Cooke says it may not be until 1995 that Triplex earns the real benefits of its strategic re-positioning and capital expenditure programme. That will not be a moment too soon for shareholders, whose patience by then may be wearing a little thin.

Triplex's current p/e rating is fancy - more than 16.5 times prospective earnings assuming an expansion of taxable profits this year to pounds 9m. That is well above the market and Triplex's sector. The company must show it deserves its good reputation.