The Investment Column: Boom in e-commerce makes for exciting prospects at FKI

BOB BEESTON, chief executive of FKI, the engineering and logistics group, is no mouthpiece for the manufacturing industry's gripes about the strength of sterling. He says the strong pound is a challenge, not an excuse for under-performance.

FKI is meeting the challenge well. Its engineering division unveiled strong export figures yesterday. That offset slow sales to oil-related markets, helping FKI post an underlying 7 per cent gain in pre-tax profits to pounds 78m. This should be sustained over the full year, Mr Beeston says.

Even so, on analysts' expectations of full-year profits of pounds 173m, or 22p earnings per share, the shares trade on a forward multiple of less than 10. That suggests an element of risk to FKI which is starting to look unfair.

FKI has come a long way since it started out as a maker of parking meters (the "k" in the name used to stand for Karparks). The hardware division, which makes castors and windows, contributes 40 per cent of operating profits. Its profits grew 8 per cent, reflecting the strength of the United States housing market.

While rising US rates are supposed to put growth in jeopardy here, FKI continues to gain market share at rivals' expense.

FKI, meanwhile, has high hopes for its logistics arm as e-commerce grows, having gathered its logistics businesses under the imaginative banner of Logistex.

The argument goes that Amazon.com and its peers will need nifty sorting systems in their bulging warehouses and Logistex will do the job. Logistex already has eToy.com on its books and had annual pro forma sales of pounds 225m.

But there's plenty of excitement near term. Orders for power generators are running at record levels, backed by the strong US power generation market. The handling business should strengthen following the recent surge in the oil price. Given FKI's healthy cash generation, the shares, up 9.5p at 177.5p yesterday, are too cheap. Buy.

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