Smaller Companies: Litho looks set to gain from printing changes

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The Independent Online
LITHO SUPPLIES is braving tough trading conditions in the printing industry to join the stock market via a placing and intermediaries' offer valuing it at about pounds 50m.

The company, which discloses its offer price next week, is Britain's largest independent distributor of printing and graphic arts products, ranging from big electronic scanners to chemicals for film processing. Litho was bought out by its management four years ago for pounds 20m.

Taxable profits fell from pounds 3.5m to pounds 2m in 1991, but have grown strongly since, and the company forecasts a 27 per cent increase to pounds 4.33m this year. The past four years' profits increases have been achieved on a modest growth in turnover - from pounds 50m in 1990 to pounds 55m last year, 86 per cent coming from consumables.

Litho concentrates on serving some 10,0000 small and medium-sized printers - about 40 per cent of the UK market - from eight centres across Britain. It stocks products from a wide range of manufacturers, including Agfa, Kodak and Mitsubishi, which do not supply direct to small customers.

The company believes its supply network and technically experienced sales force puts it in a strong position to exploit sweeping changes in the printing industry. Thanks to rapid technical advances, more printing and graphics work is likely to be taken 'in-house' by customers, increasing their reliance on Litho.

Litho's own-label products, which command better profit margins, account for almost 22 per cent of its consumables sales. Demand for specialist electronic systems that simplify the creation of artwork is also set to grow. It estimates the market for electronic equipment and consumables is worth about pounds 350m a year.

The issue, sponsored by Samuel Montagu, is expected to raise about pounds 27m, of which pounds 12m-worth is to be made available to the public via an intermediaries' offer. About pounds 15m of the proceeds will be used to reduce borrowings. Litho also hopes to expand. The shares, if priced at about 15 times prospective earnings, would be good value for the long term.

Millgate, a car alarms distributor, is expected soon to join the USM after reversing into Vista, a shell company whose shares are traded under the Stock Exchange's matched bargain facility. Millgate, which is likely to be valued at pounds 8m on flotation, boasts Luke Johnson, the former City analyst, as a non-executive director.