Cirqual looks a square deal

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The Independent Online
CIRQUAL is one of those companies to bring joy to a share tipster's life, writes Richard Phillips. Tipped in these columns successively at 152.5p in September of last year, and again at 191.5p in January, the shares now stand at a gratifying 270.5p.

The business was floated on Aim last July, capitalised at pounds 20m, and moved up to the main market in December - the first such Aim company to do so.

The latest excitement came last week with the announcement of the purchase of RFI Shielding from Siebe for pounds 9m. RFI, which makes electromagnetic shielding, became part of Siebe when it acquired Unitech a year ago. It also bought Tomas Wild Forgings, a family-owned business which makes metal forgings and castings, for pounds 5.74m. The two deals have been funded by bank borrowings.

Unusually, they will be immediately earnings enhancing, to the tune of over 15 per cent, with pre-tax profits now forecast to hit pounds 6.5m in the current year.

Cirqual wants to reach pounds 15m in pre-tax profits, through acquisitions and organic growth, before it will concentrate on growth through "in-fill" acquisitions.

Analysts have now pencilled in pre-tax profits of pounds 6m for the current financial year, based on these two latest deals. Thomas Wild, which specialises in smaller rings for gas turbines used in the aerospace industry, could have particularly good growth prospects.

Steve Powell, group managing director, says the group's relationship with GWB, where chairman Tony Gartland is based, gives it an edge on many of its competitors. GWB, an acquisitions specialist based in Halifax, supplies it with the deals at a far lower cost than hiring an expensive City merchant bank. The advantage to GWB, as a major shareholder in Cirqual, is that its real reward comes in an appreciating share price in its client companies - of which there are three at present.

"That allows management to concentrate on organic growth, while GWB takes care of the acquisition side," says Mr Powell.

While the shares have risen considerably, they trade on only 15 times earnings for this year, and 12 times 1998 earnings, if you accept the premise that profits then will rise to pounds 9.4m, which could be ambitious.

Nevertheless, Tony Gartland, the chairman, added to his holding the same day as the most recent deals went through, buying a further 10,000 shares in the business to take his holding to 8,209,199 shares, as our chart of directors' share purchases shows.

Mr Gartland's confidence encourages the view that these shares remain a buy.