Chemistry is right for Amberley

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The Independent Online
Chemical shares have been out of favour in recent months, with ICI making gloomy comments at its last results meeting. But speciality chemicals businesses can grow rapidly with the right management and trading background.

A new star in the sector is Amberley Group (95p). The shares have quintupled since a management team took charge in March 1993 but should have further to run, with the share price performance underpinned by a rising trend in profits. More earnings-enhancing deals are also likely.

The team is led by chief executive Bob Healy and finance director Brian Meddings, whose track records include spells at Rank Xerox, Pritchard, Bowater Building Products and BTP. Between them they have some 2.1 million shares either held directly or under option.

They have quickly demonstrated their ability to turn struggling businesses around. When they arrived, Amberley had one unpromising business, Murprotec, which supplied damp proofing services to the French and Belgian markets.This was showing a loss of pounds 91,000. Three years later, sales have grown to nearly pounds 7m and operating profits in the latest year grew from pounds 267,000 to pounds 550,000.

But the real transformation, which has taken the group from modest losses to reported profits of pounds 3m on turnover of pounds 22.9m, has come from three acquisitions within the umbrella of speciality chemicals, all financed by share issues at prices ranging from 38p through 47p to 61p for the most recent deal.

The first company purchased was Lawrence Industries, which imports and distributes high-quality minerals for use in compounding industries. It was acquired in November 1993 for pounds 6.3m. Since then, pre-tax profits have climbed from pounds 0.8m to pounds 1.8m last year. Further volume increases and new products should keep profits growing.

The second acquisition, Metacol, is the leading processor of liquid pigments and colouring additive systems for plastic processors in the UK. For example, it supplies the green in Pentel pens. Purchased for pounds 6m in July 1994, it is expected to grow profits in the current year to pounds 1.2m against pounds 0.7m the previous year. Growth will come from increased volume of liquid sales, expansion into Europe and developing sales of a dry colour system. The latter activity takes the group into a market estimated to be 10 times the size of the liquid colourant market, opening up what should be a substantial source of profit.

The latest deal, more than doubling group turnover, was the purchase in November 1995 of Bousfield Printing Products for pounds 12.5m. Sales are more than pounds 23m, with profits for a full year totalling pounds 1.7m, of which three months was included in last year's results for Amberley. Bousfield supplies lacquer and water-based inks and printing consumables used in food packaging, books and magazines, labels and continuous stationery.

The management expects Bousfield's profits to move into a range between pounds 2.2m and pounds 2.4m for the current year. Overall, analysts are looking for profits to reach pounds 5m for 1996 and pounds 6.2m for 1997, giving earnings per share growth of 20 and then 24 per cent, dropping the p/e into the mid teens. By that time there may have been further acquisitions to give an extra boost to prospects. The shares look likely to give holders a lively and profitable ride.

Another opportunity is Network Technology, a flotation sponsored by Sussex stockbroker Burrough Johnstone. Shares in the placing, which closes next Wednesday, are priced at 114p and should be available through Birmingham share dealer Sharelink. A proposed market valuation of pounds 35m looks good value for a fast-growing business in the booming computer networking market, forecasting profits for 1996 more than doubled at pounds 3.3m. The company makes 88 per cent of its turnover from supplying print servers but the same technology has applications in linking up copiers, scanners, faxes and even vending machines to networks.