Investment: Another sad engineer's tale

Click to follow
ANOTHER DAY, another sorry tale from an engineer. Yesterday it was Domnick Hunter's turn. The specialist supplier of industrial filters took the classic three-pronged hammering. The strength of sterling, plunging Asian demand and the UK manufacturing recession combined to curb sales and earnings growth.

The result was a disappointing set of interims, with profits up a mere pounds 100,000 to pounds 4.7m - well below market expectations. The shares reacted accordingly, losing 15 per cent to close at a 12-month low of 277.5p.

In the short term things can only get worse. Demand in the Far East, which accounts for 15 per cent of Domnick Hunter's turnover, will remain sluggish and more industrial projects are likely to be postponed.

Currency effects will continue to hit the company hard even if sterling were to depreciate. This is because Domnick Hunter's hedging policy means it is still feeling the impact of last year's soaring pound. And with the plight of UK manufacturing set to deepen as the rest of the economy grinds to a halt, Domnick Hunter is likely to suffer on home turf too.

But should investors jump on the sell bandwagon? That would be harsh: the company is soundly managed, has a leading position in several niche markets and a good geographic spread.

This underlying strength should help Domnick Hunter cushion the impact of adverse trading conditions and to bounce back when markets improve. It could also be a takeover target for the likes of Spirax and TI, especially if the shares fall further. Either way, the shares - trading on 15 times expected 1998 earnings of pounds 9.8m - are worth holding.