Profits flowing at Hozelock
Sunday 23 April 1995
These trends are excellent news for Hozelock, at 289p a Buckinghamshire company that dominates the market in keeping plants well supplied with water. A glance through the group's catalogue gives a vivid picture of the gadgetry now available. Your tangled hose can be kept neat and easy to use on an array of thru-flow reels, carts, boxes and cassettes like a camera film reel. There are so many accessories that the company also sells a rack for storing them.
The key to this explosion of gadgetry, according to the chief executive, David Codling, is the advance of plastics technology over the past 10 years. Last year, the group introduced 24 new products, and there will be a constant stream of fresh launches.
This proliferation of products has stimulated a sales boom which, allied to tight control of overheads and productivity gains in the factory, has put a gusher under Hozelock's profits. Between 1991 and the year ended 1 October last year, sales grew from £25m to £38.6m, operating profits from £3.3m to £7m and pre-tax profits from £1.6m to £7m. Pre-tax profits grew faster because between 1991 and 1993 the group carried a heavy interest burden from borrowings associated with a management buyout. These were substantially paid off when the group raised money in a flotation at the end of 1993. That flattered the 1994 figures.
In the light of the company's performance, its historical price/ earnings ratio of 14.2 and 3.2 per cent dividend yield seem ungenerous, and the shares are still only modestly higher than the 250p flotation price. Investor enthusiasm may be restrained by fears that, with a 74 per cent share of the UK watering equipment market and last year's boost from a hot summer, life can only grow less exciting.
But my hunch is that Hozelock could do better than suggested by these cautious forecasts. One highly positive development is that on Thursday the company opened a massive new state-of-the-art factory near Birmingham, which will transform capacity and productivity. The demand side also looks promising. The market has been growing fast, by 33 per cent last year, and strong growth should continue.
The biggest potential lies in the group's plans to replicate its UK success in Europe, where its main competitor, German-based Gardens, is handicapped by the soaring mark. Hozelock's sales to Europe fell slightly last year from £8.6m to £8m, but this reflected a combination of recession-inspired destocking and a late start to the summer.
The odds are good that profits will grow significantly over the next two years, with the "wild card" prospect of a developing bonanza if the group can build in Europe. On a prospective p/e ratio of 13 or less for this year, falling to 11 or 12 for 1995/96, the shares look underpriced.
Free cash flow will be strong now that the new factory has been completed, so dividends should also be generous with a likely yield over 4 per cent for the year beginning this October.
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Ukraine crisis: Russia dismisses '3am ultimatum' as 'total nonsense'
If you're horrified by a flame-roasted dog, you should be shocked at a hog roast
Poor 'live like animals' says Boris's privately educated sister after going on 'poverty safari'
White people become less racist just by moving to more diverse areas, study finds
Exclusive: Impact of immigrants on British workers ‘negligible’
- 1 To those who can’t see the point of International Women’s Day: you are the very reason it exists
- 2 International Women's Day 2014: The shocking statistics that show why it is still so important
- 3 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 4 Orgasm machine to deliver climax at the push of a button
- 5 Liam Neeson turned down James Bond role because late wife Natasha Richardson said she wouldn't marry him if he took it
iJobs Money & Business
£12000 per annum: Inspiring Interns: The company works with Tier 1 FTSE 100 Ba...
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£37000 - £40000 per annum + £20000 benefits package: Pro-Recruitment Group: **...
£30000 - £35000 per annum + generous benefits: Pro-Recruitment Group: Mixed Ta...