Future set fair at David Brown for

INVESTMENT COLUMN

David Brown, once better known for its tractors and Aston Martin sports cars, is today rapidly re-establishing the engineering business on which it was founded in the last century. The formerly family-owned company owes its renaissance to the 1990 buyout that brought in two former FKI executives to lead the management of the group.

The record since then has been impeccable, with profits rising from pounds 3.85m in 1991 to pounds 12.5m last year, and half-way results to July show no sign of any let-up - the pre-tax figure is up 15 per cent to pounds 6.57m.

Despite the rights issue at 205p that accompanied May's move to mop up the remaining David Brown family-owned engineering companies, underlying earnings per share have moved up 12 per cent to 7.4p. The company is holding to its forecast that the four companies will be earnings enhancing in a full year. A reorganisation should see margins, now around 7 per cent, lifted closer to the group average of over 10.

More of a disappointment in the half year was the heavy pumps business, which saw profits dive 35 per cent on sales down 39 per cent. Management blames the timing of sales and technical specification changes by its Far Eastern customers, but with record order books and recent strong trading it is cautiously optimistic of making up the lost ground in the second half.

Another historic under-performer, the Radicon industrial gearbox manufacturer, is responding well to the introduction of new ranges and a pounds 3m investment programme will double capacity over the next 12 months.

Future group sales are almost completely underwritten by order books now standing at an all-time high of pounds 132m. Added protection is derived from Brown's lessening dependence on the domestic market, which has been cut from 70 per cent five years ago to just 16 per cent now - just as well, as the latest industry survey points to a further slowdown in growth.

Profits of pounds 15m before an expected pounds 1m reorganisation provision this year would put the shares, unchanged at 220p, on a prospective multiple of just under 14. About right.

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