Pound hides TI's strengths
The Investment Column
Friday 01 August 1997
These wild share price fluctuations look unjustified. TI claims the only currency hit is through translation, in other words its overseas profits are worth less in pound notes, but its underlying business remains unaffected, as the bulk of its products are produced in domestic markets rather than exported. Even though analysts believe currency probably still has some effect on sales, the overall impact is likely to be minimal.
The currency issue has diverted attention from the fact that TI is in solid businesses with good growth potential. Underlying profits rose 8 per cent to pounds 112m for the year to June. Ignoring the currency hit of pounds 7.8m, underlying profits grew by 15 per cent.
The star performer was the Dowty aerospace business, where earnings leapt 97 per cent. It cashed in on the strong upturn in plane orders around the world. There are problem areas. John Crane, the mechanical seals division, fared poorly due to difficult European markets, but overall TI is moving in the right direction.
Hoare Govett is forecasting profits of pounds 221m this year, somewhat below the consensus, putting the shares on a prospective p/e ratio of 16. It believes John Crane may take time to sort out, while the outlook for UK manufacturing industry is uncertain. That said, TI shares still look good value.
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