Investment: Firm prospects for Metalrax

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The Independent Online
SUPERFICIALLY, METALRAX Group looks an unexciting stock. The company is a medium-sized specialist engineer with turnover of just over pounds 100m and forecast profits of pounds 14.5m.

Its products are low-tech. It makes household goods such as pots and pans, shelving for schools and libraries and more sophisticated components for storing and handling materials - parts for conveyor belts and the like.

But boring as it sounds, this might just be a good defensive stock. Its management seems to think so. Yesterday the company bought one million of its own shares. The company's share price shifted up slightly from 86p to 88.5p - although not much more than the market.

Metalrax - named after its shelving business - is managed in a deeply conservative but competent way. Compared to rival engineers it is capable of withstanding the currency shocks because of minimal exposure to the Far-East. Where the strength of sterling threatened to boost its costs, it has gone some way to neutralising the threat by buying materials and parts from abroad.

So confident is chairman Eric Moore that he predicts 10 per cent growth in full-year pre-tax profits at a time when other engineers are preaching doom. But then, Metalrax has a different kind of client base.

Shelves will be one thing to be replaced in the pounds 1bn-plus upgrading of school facilities. Demand for household goods may dwindle if the property sector slumps - but there is still a steady stream of demand.

Interim profits were in line at pounds 6.31m, up 10 per cent from pounds 5.73m, causing Credit Lyonnais to forecast full-year earnings of pounds 14.5m, rising to pounds 16m next year. That puts the shares on a full-year PE ratio of 11 for 1998 and 10 for 1999. Given Metalrax's solid prospects, that's cheap. Buy.