Datacom duds overshadow Racal

As always, Racal's figures are a mixed bag in which good performances from a number of extremely promising businesses have been overshadowed by yet another dismal result from the company's data products division.

That is unfortunate, because it distracts attention from the company's undoubted entrepreneurial skills and the uncanny knack Sir Ernest Harrison has shown over the years for realising shareholder value.

The numbers themselves for the six months to September were in line with expectations - pre-tax profits of pounds 30.1m, up 28 per cent, and a nice 20 per cent rise in the interim payout to 2.1p - so yesterday's share price improvement, up 6p to 276p, was a reflection of the market's welcome for the acquisition of British Rail's in-house telecommunications supplier for pounds 133m.

Buying in profits of pounds 17.6m, the deal is expected to be earnings-enhancing from day one and dilutes the impact of struggling modems, credit card terminals and other computer peripherals on the dominant data communications division. Owning the network should open some useful doors in both Whitehall and the private sector.

That is just as well given the slump into losses of the division once the beneficial contribution of Racal's Camelot stake is stripped out.

Without Camelot, datacoms made a pounds 5m loss compared with an pounds 800,000 profit last year, itself a pathetic return on sales of almost pounds 200m.

The company makes two points, both of which carry some weight. First, Camelot is an integral part of the datacoms division - if it were not so high-profile, and the rest of the business so arcane to the average observer, no one would consider stripping it out in the first place.

Second, the division is showing every sign of having bottomed out - new management has an impressive track record in turning around other apparent basket cases.

But with no one claiming that break-even is any closer than 18 months away, data communication is still a heavy drag on the rest of Racal, itself something of a curate's egg.

Margins are under pressure at the biggest earner, Specialised Businesses, the up-front costs of trying to win the Government's Bowman radio contract are draining Radio Comms, and marine and energy work is highly competitive so Racal was more than usually dependent on an impressive 10 per cent return on sales from its defence companies.

Profits for the full year to March are now expected to reach pounds 73m compared with last year's pounds 58.3m, putting the shares on a prospective price/earnings ratio of 16. There is plenty of growth potential in Racal, but the shares have had a strong run over the past few years and, with an unexciting yield, they are high enough.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links