Dynamo under the dashboard

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The Independent Online
Big car manufacturers are now global operations that want equally global suppliers to provide them with complete sub-systems at ever lower cost on a just-in-time basis. These are tough requirements that many cannot match. But, for those who can, there is a huge opportunity for growth. One company on just such a path is the electronics firm Pressac, at 237.5p.

The achievement to date has been extraordinary. Since 1992, sales and profits have jumped from pounds 33.7m and pounds 1.95m respectively to pounds 69.9m and pounds 6.4m. Further expected growth, plus the integration of an Italian components business, Italamec, will keep momentum bubbling.

Stockbroker Williams de Broe is forecasting sales of pounds 94m in the year to 31 July 1997, incorporating a half-year from Italamec, with profits reaching pounds 9.8m. This should be followed by pounds 120m and profits of pounds 13m for 1997-98, with earnings per share reaching 15.3p on a chunky 41 per cent tax charge to give a p/e of 15.5.

This progress has been achieved under a management team led by Roger Boissier, who became chairman in 1996, and Geoff White, chief executive since 1989 although he is still only 44 years old. These two presided over an efficiency drive in 1992 and 1993 which saw substantial investment in capital equipment and a steep fall in staff from 1,800 to just 700. A culture of continuously improving efficiency has been introduced at all the group's factories in England, Scotland and the USA.

Italamec was the second purchase by the new management team. The first, in December 1994, brought in the Glasgow-based business, McGavigan, which makes components for car dashboards and steering wheel hornpads. The purchase price was pounds 9.5m, financed by a one-for-two rights issue. The deal was a perfect fit for Pressac, which makes the electronics behind the dashboard. The acquisition enabled the firm to meet car manufacturers' growing demand for complete sub-systems.

The group's ability to win big orders from a who's who of the world motor industry (including the Japanese) has been strengthened by its growing expertise in the production of surface-mounted printed circuit boards. Cars are increasingly marketed on the strength of their sophisticated electronics in safety, security and operational systems. Surface-mounted technology is the key to delivering these systems within the tight cost constraints demanded by the industry. A breakthrough by Pressac has been its ability to produce a soldered product mounted on polyester rather than the vastly more expensive polyamide that was previously required.

Like McGavigan, Italamec looks an excellent fit, with substantial medium- term benefits for both sides of the deal. It is a long-established manufacturer of central locking and lighting systems. Customers in Italy include the Fiat Iveco group, which accounts for around 44 per cent of sales. Profits have grown strongly in recent years, helped by exports, particularly to German companies such as Opel, Mercedes-Benz and Volkswagen.

In the last 10 months, Italamec made pre-tax profits of pounds 3.4m on sales of pounds 23.8m. Even allowing for a hefty 53 per cent Italian tax charge, the exit p/e is 11.3. Future prospects are excellent with minimal customer overlap and scope for Pressac to benefit from the advanced Italian technology.

The balance sheet at Pressac is strong with minimal borrowings, thanks to the funding of the pounds 21m Italamec acquisition by a one-for-three rights issue (closing date is 29 January). More deals on the motor side, accounting for around 80 per cent of the group, can be expected.

However, finance director Huw Lewis does not rule out the possibility that the telecommunications arm, accounting for most of the remaining 20 per cent of sales, could be the biggest division in a few years time. The group supplies connectors to the telecommunications, cable and white goods industries. These are becoming increasingly complex, with escalating requirements for voice and data transmission offering a substantial growth opportunity, possibly bolstered by acquisitions.

The overhang of the rights issue may restrain share price performance in the short term but further impressive share price progress can be expected in the medium term.