Like many companies, Hadleigh had a difficult recession but the lessons learned are helping it reap rich rewards. Strengthened financial controls and reporting systems have both achieved operational efficiencies - for example, a dramatic reduction in working capital requirements - and highlighted the stronger and weaker businesses within the group. As a result, the poor performers have been disposed of, leaving the group sharply focused as a world leader in the market for bulk handling equipment (tank frames) through its Universal Bulk Handling subsidiary.
In financial terms, the effect of the changes has been dramatic, with more benefits to come. Between 1993 and 1996 pre-tax profits have grown from pounds 200,000 to pounds 1.8m with the dividend rising more than tenfold and pounds 2.4m of borrowings being transformed into pounds 1.6m of net cash.
Business is never that easy, however. Hadleigh is facing stiff competition on prices from South African-based rivals with lower labour costs. Internal budgets allow for a further fall in selling prices on bulk handling equipment. The opportunity comes from adding to the group's strengths in beam tanks, where it has 40 per cent of the world market. Chief executive, Tony Cookson, is targeting a quick move to a 10 per cent market share and aims for overall annual tank sales to move from 1,400 to 2,000-plus by 1998.
Analyst Roger Brocklebank, at stockbroker Albert E Sharp, predicts earnings per share will climb from 17.4p to 20.7p and then 25.3p, helped by a sharp improvement at Hadleigh's other subsidiary supplying double skin steel petrol tanks. That implies the p/e falling to 12.1 and then less than 10, which looks cheap.
Dixon Motors is a vehicle distributor being run with almost evangelical fervour by chief executive, Paul Dixon. His initial aim to dominate the Yorkshire television area is proceeding apace - the group owns 29 retail outlets, primarily in Yorkshire. Another promising element in the strategic plan is the target of 5 per cent profit margins against the 3 per cent currently being achieved.
The group is also excited by after-sales opportunities, especially given the growing vehicle park of people who have bought a car from a Dixon site. Last year parts and service accounted for 14 per cent of turnover but 55 per cent of profits. The rights issue, raising pounds 12.75m from a one for three at 220p, is intended to further this opportunity by strengthening the group's finances and funding the acquisition of GPG, an auto parts distribution business that last year made profits of pounds 740,000 on pounds 15.1m of sales.
Strong profits progress looks assured for Dixon; analysts forecast pounds 5.4m for 1996 followed by pounds 7.5m for 1997 and pounds 9m for 1998. By then, the p/e should be down to single figures. The car market seems to be picking up steam, making now a timely moment to buy the shares.
Tinsley Robor, first recommended last June at 67p, is an old favourite. It is riding the boom in CD packaging for the audio and multimedia markets, with film shaping up as a third leg of growth for the future. The group is also tapping shareholders for money with a one for three rights issue at 130p to raise pounds 11.4m. The main reason for the issue is to provide funding, partly retrospective, for a capital investment programme to increase capacity. Without the issue, borrowings as a percentage of shareholders' funds had reached an uncomfortably high 88.4 per cent, threatening to restrict the group's freedom of manoeuvre in the future.
In the short term, the shares may need to consolidate. There is a need to absorb the rights issue shares and the group has pointed out that a bunching of large contracts in the first half of last year will affect comparisons this time around. However, full-year and medium-term prospects are excellent, given the group's position as a market leader with massively expanded capacity, operating in an area of booming demand.Reuse content