Menvier-Swain looks secure
The Investment Column
Wednesday 29 January 1997
Some of its sang froid is more apparent than real. All of the 19 per cent jump to pounds 7.02m in half-year profits to October reported yesterday was down to the first full contribution from Scantronic, a loss-making burglar alarm group acquired in November 1995. That chipped in around pounds 1.4m to operating profits raised from pounds 6.09m to pounds 7.24m.
But all this just highlights the underlying strength of Menvier. Take Scantronic. After disposing of both its under-performing US side and the AlarmExpress business (to Norbain), Menvier has been left with a business costing less than pounds 14m which is producing profits of around pounds 2m a year.
The disposals and sorting out technical problems with some of the products have lifted margins at Scantronic from 10 per cent to above 12 in just six months. Margins at the existing Menvier Security operation, which raised sales a fifth in the latest period, are above 13 per cent and management has yet to get to grips with rationalising the manufacturing facilities of the old and the new business.
Elsewhere, the problems of competition in the UK market were exacerbated by the strong pound, which led to a pounds 200,000 hit on translation, hiding the extent of growth overseas. Emergency lighting profits slipped 10 per cent to pounds 2.27m, while fire alarms was down 12 per cent at pounds 2.61m. But Menvier says there is good news in the pipeline. Engineers and surveyors are pointing to an upturn in the newbuild market, which should start to come through to the group's products later this year, when the strength of the pound will be cutting raw material costs. There should also be further benefits this year from concentrating UK lighting production and raising productivity at the group's Banbury factory.
After that, the company is confident that typical long-run growth rates of between 5 and 15 per cent will resume, underpinned by the continued tightening of European fire safety rules. While the UK and France are well along this track, many of the Mediterranean countries outside Italy and the Scandinavian countries lag best practice.
Menvier's strong market shares mean it should benefit to the hilt, helping it to maintain an impressive 10-year record of 17 per cent annual earnings growth. Profits of close to pounds 16m this year would put the shares, down 5p at 320p, on a forward multiple of 15, falling to 13. Reasonable value.
good on paper
Property prices are on the way up, dramatically so in some areas, the feel-good factor appears to be returning, and with it demand from brand-conscious buyers for up-market fabrics and wallpapers. No surprise then that Colefax & Fowler's UK sales in the six months to last October 30 were up 18 per cent. Sales in the company's US heartland on the eastern seaboard were running 20 per cent ahead of last year.
The new range of multi-coloured voile fabrics is the height of current fashion, although the fastest growth has come from Jane Churchill, the cheaper range of fabrics and wallpapers, still expensive by most standards but a snip to women who decorate at pounds 25 a metre. New systems installed over the last few years are also contributing to increased margins.
Overall group sales in the first half of the current financial year were 13 per cent up on the same period in 1995, but profit before tax leaped 45 per cent to pounds 1m.
Earnings per share were ahead 38 per cent to 3.04p in spite of an increase in the tax charge to 25 per cent.
Gearing has been reduced to just 13 per cent and capacity is not a constraint. The UK supplies 70 per cent of the stock but 70 per cent of sales are overseas, especially the US and Europe, so a strong pound is a handicap, but the company is more comfortable with $1.60 now than it was with $1.70 a few weeks ago.
Chairman and chief executive David Green is happy to see that his loyal shareholders are back in the money after three years of underperformance. He plans to diversify into bedlinen and upholstered furniture. Continental Europe is under-exploited and the wallpaper division still has some way to go to reach its target 20 per cent of sales.
The second half normally outperforms the first, and if the business continues to generate cash at current rates gearing could be eliminated by 1998. The interim dividend has increased from 0.75p to 0.9p and 2.25p is on the cards for the full year. The shares were down yesterday 6p to 115p but analysts are upgrading earnings per share forecasts to 7-7.5p for this full year and 8-8.5p for next. If you think the UK and US economies are set for two more years of steady growth the shares, which have doubled over the past year, still look good value.
Domino heads back on line
Having profited in the early Nineties as food giants like Nestle and Unilever rushed to meet European bar coding requirements, Cambridge- based ink jet printer Domino Printing Science came horribly unstuck two years ago. Problems with print heads on some new machines and clogged jets caused by congealing ink led to a series of profits warnings.
The shares soon lost their go-go rating and have underperformed the stock market by 57 per cent in the last two years. The year to October 1996 was one of consolidation. Pre-tax profits rebounded from pounds 5.2m to pounds 9.2m on flattish sales of pounds 109m (pounds 106m), but earnings of 21.5p are still way below their 32.9p peak in 1994.
The pedestrian sales performance reflects a 35 per cent drop in the US commercial printing sales, where soaring paper prices caused customers to cut back on their investment plans.
Domino also faced tougher competition in the pounds 670m market for industrial ink jet and laser printers and now only shares number two slot with Imaje of France after market share slipped another point to 16 per cent.
As managing director Howard Whitesmith admits, this market is a mature one where price increases are a fond memory. But ink jet machines are less than half of Domino's business; the bulk of sales are in higher margin value-added services such as supplying inks, spares, service and training.
Domino literally operates in a fast-moving industry - customers like Anheuser-Busch can shift 2,200 cans of Budweiser a minute - so high hopes are pinned on Domino's new laser coder, which should make a maiden profits contribution this year.
With the US market, which accounts for almost a third of sales, recovering Kleinwort Benson expects pre-tax profits of pounds 10.5m, putting the shares, up 49p to 325p, on a prospective p/e of 12. About right.
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