Lively Unitech charges back

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There is nothing glamorous or exciting about the power supply of electrical appliances, but Unitech has done very nicely out of it. Every electrical appliance has a power supply - a little box of tricks that converts the mains into the correct current. The $13bn market is fragmented, and Unitech has a large share.

After a hard time in the recession, when shares fell to 124p, the company has been rewarding investors with a spectacular run of good results and a rising share price.

Yesterday was no exception, when Unitech reported profits up 84 per cent to pounds 36.4m for the year to May and a 15 per cent rise in the dividend to 7.55p. The shares climbed to finish 21p ahead at 434p.

The core power supplies business increased profits from pounds 20m to pounds 32.7m and the Japanese subsidiary Nemic-Lamda, in which Unitech has a 50 per cent stake, contributed pounds 20.7m.

The Japanese business has been something of a fairy godmother for the company, with Unitech's share notionally worth more than the entire market value of Unitech itself. Achieving its full value in a sale would be difficult, of course, but Nemic gives Unitech's shares a firm floor.

There are several factors under-pinning Unitech's rise. First, it is in the fastest-growing sector of the power supply market, which is predicted to rise by more than six per cent a year for the rest of the decade. This is the non-bespoke manufacture of power supply for the increasing numbers of manufacturers who choose not to make their own.

Through its Japanese subsidiary, it also has a strong foothold in the Far East market, which is growing like topsy. This is principally due to the strength of the yen, which is forcing Japanese companies to relocate factories off-shore. Every new factory means new equipment and more power supply units.

The company is also reaping dividends from its P Series, a smaller modular power unit which was launched in 1993. Elsewhere, the connector subsidiary which supplies the semi-conductor market in the US turned a pounds 500,000 loss into a pounds 3m profit.

House broker UBS is forecasting profit of pounds 47.6m next year, a figure which puts the share on a forward rating of 14. This is a slight premium to the market, but given the prospects, it is still fair value.

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