Branching out benefits Vosper: The Investment Column

It is hard to fault Vosper Thornycroft's strategy of reducing its dependence on its core shipbuilding business.

Defence orders such as the Type 23 frigate deal on which Vosper lost out to GEC earlier this year, tend to follow a lumpy pattern which is hardly conducive to sensible planning.

Instead, the Southampton-based engineer has been developing other businesses in facilities management and training where it is benefiting from the trend towards contracting out.

These businesses account for a third of group sales and a quarter of profits with plans to boost the latter figure to 40 per cent.

So far these operations include Flagship, which handles the Royal Navy's training requirements and Vosper Mantech which runs engineering works for GCHQ. Vosper even runs Hampshire's careers service.

The fruits of the strategy were evident in yesterday's results for the six months to 30 September. Pre-tax profits were 11 per cent ahead to pounds 12.7m on sales slightly lower at pounds 107m.

Almost two-thirds of sales are to export markets with the Middle and Far East particularly strong. In the first half, it delivered minehunters to Saudi Arabia and fast-strike craft to Qatar.

It is this business that is the key. Vosper's order book currently stands at pounds 400m and the group is expected to report a steady increase in profits until 1998.

But it needs a new order soon to re-assure investors about prospects after that. Chief executive Martin Jay is confident that such an order can be secured in the next three to six months. Prospects are encouraging in the Middle and Far East, the company says.

And Vosper has tendered for the fleet maintenance contract at Portsmouth Docks in conjunction with GEC, a contract which would be worth hundreds of millions of pounds.

The business still has pounds 111m of cash, some of which will be used for acquisitions in electronic controls and marine products, though there are no imminent purchases.

The shares have been treading water recently though, as ever, they remain sensitive to new orders and volatility in export markets.

Assuming full-year profits of pounds 31m, the shares - up a penny yesterday at 836p - trade on an undemanding forward rating of 13. Worth holding.