Investment Column: FKI hits the acquisition trail

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The Independent Online
Engineering group FKI is starting to deliver on broad hints dropped in June that it could have over pounds 300m of acquisitions under its belt by the end of this year. Yesterday's pounds 52.3m deal to acquire Nuova Marelli Motori of Italy is the thin end of that particular wedge, but FKI confirmed bigger buys of around pounds 200m are still in the offing.

Nuova Marelli should keep the pot boiling. It is being acquired from two US investment funds and fulfils the FKI criterion of occupying a leading position in its markets. The company makes low-voltage electric motors and alternators, with applications including fork-lift trucks and lifts. It commands 14 per cent of the Italian market for its type of AC motors, just ahead of ABB, and a strong 32 per cent share of the alternators market.

That helped deliver underlying operating profits of L14bn (pounds 5.9m) in 1995, on sales of L133bn (pounds 56.5m), after adding back central costs. FKI says reorganisation costs should be no more than pounds 1.5m in a full year, so there should be a marginal contribution this year, but the real benefits should come in 1997. Marelli neatly complements FKI's existing Laurence Scott business, whose motors and generators are aimed at slightly larger specialist applications such as in submarines and nuclear plants. By offering a bigger range and enhanced distribution from the two companies, while supplying more of the group's needs for motors in-house, FKI reckons it can increase sales by around pounds 8m a year.

The market was unimpressed, marking the shares down 0.5p to 187.5p, but FKI's caution on acquisitions is welcome. Full-year profits of pounds 109m, for a forward p/e ratio of 15, suggests the shares are reasonable value.

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