Little gems in the material world

Smaller Companies

SMALLER companies can often outperform larger rivals by being more flexible and by focusing on niche areas seemingly too small to interest giant concerns. Two examples in materials technology are Universal Ceramic Materials, at 104p, and Doeflex at 220p. While tiny in the context of their industries, they are big successes in world markets.

Universal Ceramic had a baptism of fire when the shares were floated in the summer of 1994. They opened at a reasonable premium but drifted steadily lower as the stock market suffered a severe bout of new issue indigestion. But they have picked up recently as investors come to realise that, helped by acquisitions, the group is becoming significant in its market.

Performance has been held back by weak prices for many of its products, but this could change as rivals drop out, shrinking global capacity while world demand is rising. Two large German rivals have pulled out.

The chief executive, Bob Hughes, is particularly enthusiastic about prospects for fused magnesia, the material used in heating elements. The group is the world leader in this market and has the capacity to handle extra demand. While the developed economies are relatively mature markets, there should be strong growth in Eastern Asia and the Third World as electrification spreads. The group is a significant exporter to the Pacific Rim and China.

Investors tend to associate ceramics with refractories - a mature market with high exposure to steel and the struggling construction industry. But the fine powders area of the business - with applications such as auto emissions, cutting tools and fabric spools - is growing fast.

The group is also strengthening its hand by acquisitions. Early this year it picked up the electrical grade magnesia assets of Tateho America. Then in June it announced it was in talks for the fused magnesia business of Pechiney Electrometallurgie in France. The French business has just 40 employees, but it could still be a significant deal: turnover was pounds l2m even when the business was operating at half capacity.

There is normally a slight first- half bias to Universal Ceramic's profits, but that may be different this year with a six-month contribution from the US acquisition. Based on the first-half pounds 1.45m, full-year profits should reach pounds 2.8m or better for a prospective price/earnings ratio of around 12 and a likely dividend yield of 5.4 per cent. In the following year profits could be in the range of pounds 3.3m to pounds 3.5m.

Doeflex is in specialised plastics and it is having a brilliant year, with first-half pre-tax profits up 60 per cent and a 54 per cent rise in earnings per share. The chairman, Richard Bickerton, talks of years of growth ahead at 20 per cent a year. But Doeflex could do even better. Observers have been greatly impressed by its ability to recover raw material price increases from customers in a wide range of end user markets.

The strong performance partly reflects recovery from years of recession. After years of growth (sales were pounds 2m in 1980 and should reach pounds 50m this year), profits stagnated between 1992 and 1994. Not helping were the acquisitions in 1992 of sheet plastic businesses in the UK and Belgium. These produced losses for longer than expected. The British business, Iridon, has now been restored to satisfactory profits and the Belgian firm, Horizon, is making a small contribution and set to do better.

Doeflex has illustrated the problems it faces with volatile price fluctuations. A typical example was a fall in one type of plastic from pounds 760 to pounds 450 between January 1989 and June 1994, before it rose to pounds 855 in June 1995 and then fell back to pounds 700 by September 1995. The group's view is that the fundamentals of tight supply and rising global demand will result in a period of consistently higher prices than earlier in the decade.

The main constraint on Doeflex is lack of capacity, and it is close to launching a large investment programme which is expected to secure significant organic growth over the next few years. Acquisitions also help, with the recent purchase of Plastech Extrusions taking forecast output on the sheet plastics side towards 20,000 tonnes, against 5,000 in 1989.

On forecasts of pounds 3m profits this year and pounds 3.5m-plus for 1996, the prospective p/e is 16 and the yield 3.5 per cent. This looks excellent value for a company set for years of fast growth.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Life and Style
food + drink
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas