But the company gained a new lease of life after fresh management moved in, spearheaded by chairman Jacques Murray, a French-born businessman, who bought 64 per cent of the company. He was joined by chief executive Eric Hook. Together, they focused on bringing costs under control, and have reached the stage where growth is more reliant on acquisitions and on sophisticated selling of the company's products.
In pumps, for example, where the firm is a strong brand, it has recovered the rights to its brand name in the US after a successful court action in the UK. It is recruiting new distributors for its pumps business in the US, South Africa and Asia. Sales of pumps make up 33 per cent of revenues, and while the UK has yet to recover fully, the business looks set to pick up strongly overseas.
Away from pumps, Andrews Sykes sees cold winters and long hot summers as the ideal weather conditions. As well as air conditioning for sale and hire, it supplies heating, which generates 23 per cent of sales. Management has worked on its customer base to extend hire periods, with good results. A favourable winter created the backdrop for an excellent year, and with low maintenance costs there is strong cash flow.
Portable air conditioning is also booming, with the UK hire fleet doubling in the past two years to 4,000 units. As with heating, the firm is the UK market leader in the hire of portable units. It is also one of the largest installers of split-system air conditioning.
Overall, the business has generated pounds 10m of cash over the past two years, after capital expenditure and acquisitions - enough to leave pounds 1m in the bank at the end of 1996, from borrowings of pounds 17m in 1994 or 267 per cent gearing. The cash is a sound base from which to hunt for further acquisitions.
House broker Charterhouse Tilney estimates that sales can rise to pounds 48m for this year, from pounds 45.3m in 1996, to push profits ahead to pounds 10m from pounds 7.9m. That could produce fully-diluted earnings per share of 38p (31.9p). On that basis the shares, at 565p, trade on a forward p/e of 14.8 times, reducing to 12.9 times in 1998.
While this suggests that the remarkable turnaround of the past few years is fully reflected in the price, management remains ambitious and the group is well placed to expand from its now stable base. Buy.