Smaller Companies: Field wraps up paper deal

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The Independent Online
On Thursday, paper and packaging business Field Group (355p) made another acquisition, to reinforce its labels division, writes Richard Phillips.

The deal was hardly earth- shattering. It paid pounds 5m for Tudor Labels, a supplier of self-adhesive labels to the pharmaceutical, cosmetics and food sectors. The deal is one of several small bolt-on purchases it has made since it came to the market in 1993.

Yet despite the track record of previous acquisitions, the company has fallen out of favour. Some of this is down to the exuberance of sterling, but there is also a general malaise across the sector. The likes of De La Rue and Rexam have seen their shares knocked on concerns ranging from the quality of management to overcapacity.

Yet Field has an interesting story to tell, which suggests the shares have been unfairly grouped in with the problem children of the sector. Sterling, admits chief executive Keith Gilchrist, is a problem. Sourcing raw materials, which are denominated in marks, dollars, and Scandinavian currencies can make for headaches. Add in the fact that many of the labels and packaging it makes are destined for export, and the rise in sterling has further implications.

But the company has performed a successful juggling act. To reduce its exposure to the vagaries of sterling and price fluctuations in carton board, its main raw material, it has been busy tying up long-term contracts with suppliers, of two to three years. Mr Gilchrist says the group has benefited from the expertise it obtained from its Belgian acquisition. Techniques to shorten delivery times and prompt customers to commit to precise quantities have helped free up working capital.

Field has plenty of blue-chip customers with which it has a close relationship, having bought out the high-street retailer's packaging business. But it is not over-dependent on any one sector, or client. Clients range from tobacco companies to Marks and Spencer and pharmaceutical firms.

With a record of steadily rising profits, a sensible acquisitions policy, and clever management, investors should have every confidence. The group would make an attractive morsel for a Continental marauder. While Field's management hold out for their independence, that alone should limit any downside. The shares represent good long-term value.