Investment Column: Scapa

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The Independent Online

SMALL-CAP COMPANIES regularly complain, with some justice, that institutional investors neglect them just because of their size. So why is , the small-cap adhesives company which bought the industrial division of Sellotape in 1997, making itself even smaller?

To address falling sales and a share price languishing at 133p - it was 273.5p in 1996 - 's directors have decided to focus on the business instead of taking the easy route out and seeking a merger.

They are concentrating on what does best, sticky tape for industry and the medical profession, and are selling the paper machine and materials divisions. Although the company will be smaller, shareholders will receive a special dividend of 50p.

's strategy has logic. The global technical tapes market is worth pounds 6.5bn. Half of that is taken by 3M, Japan's Nitto Denko, and Tesa, a German company owned by the makers of Nivea. The rest of the market is fragmented.

has the advantage on its competitors that it will be entirely focused on technical tapes. Moreover, it has proved its ability to continuously innovate - a valuable source of competitive advantage in technical tapes since there are no patents up for grabs.

Following the disposals, will be debt-free and need to gear up its balance sheet to manage its capital more efficiently. It is planning acquisitions to reduce dependency on European markets, which currently account for 75 per cent of technical tape sales.

Analysts expect the newly focused group to have turnover of around pounds 200m in 2001. That would generate operating profits of around pounds 24m and earnings of 14p per share.

With looking so cheap, a rival could be tempted to bid for the group. But 's clear-sighted strategy, and the prospect of that 50p special dividend, make the shares a buy in any case.