Investment: A harsh verdict on GKN's success story
Thursday 06 August 1998
Take GKN. Despite producing an excellent set of interim results yesterday, the automotive and defence engineer watched the market pull its already heavily discounted shares down another 23p to 748p.
This may seem harsh. After all, profits in the automotive division soared by pounds 27m to pounds 133m, making the unit GKN's star performer, at a time when manufacturing elsewhere is feeling the recession.
But by its very nature the car business is a cyclical one and with the sharp downturn in the Far East, the cycle looks to be swinging down.
Chief executive CK Chow is aware of this - hence his prediction that business in this sector in the second half will be flat.
So where will a sharp economic downturn leave GKN? Probably in much better shape than than most other companies in the engineering sector.
Solid orders in defence for helicopters and the Multi Role Armoured Vehicle - the so called "battlefield taxi" - protect the group from cyclical demand. And GKN's alliance with Agusta Helicopters in Italy looks set to result in the creation of Europe's largest helicopter company, capable of competing effectively with the Americans.
And the rapidly growing industrial services sector, which concentrates on the Chep pallet business, is growing quickly in Europe and the US.
GKN is cash-rich and has more than pounds 1bn to spend. Mr Chow does not disguise his plans to buy growth through a series of pounds 100m deals.,
One set of good results from GKN will not change the market's sentiment. But if you want exposure to the engineering sector then GKN is one of the best prospects around.
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