The Investment Column: EU red tape will benefit Menvier

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The Independent Online
Menvier Swain has had a tremendous record over the years, benefiting from the underlying growth in its fire alarm, emergency lighting and security niches and from its own ability to squeeze costs and steal market share from its competitors.

Profits of under pounds 2m 10 years ago grew last year by a healthy 12 per cent from pounds 11.5m to pounds 12.9m despite what chief executive Roger Fletcher described as the most difficult year the group had encountered for many years. After a 10 per cent increase in earnings per share to 17.94p, the dividend, which has grown every year over the past decade, jumped 13 per cent to 5.75p.

One of the attractions of Menvier's markets is that in the long run they are driven by legislative changes, with directives from Brussels demanding ever tighter standards in the workplace when it comes to emergency lighting and fire alarms.

Implementation of these new rules could take many years, but it will underpin growth in the medium term.

The group also has a good record of acquiring underperforming businesses and turning them around. Last November, when Menvier acquired security group Scantronic, there was a great deal of cynicism about whether it had bitten off rather more than it could chew and opened itself to potential black holes.

In the event, the deal seems to be working out extremely well and has created a useful third leg for the group.

Yesterday's results, together with confirmation that Menvier is pulling the plug on a troublesome German subsidiary, sent the shares 25p higher to 270p.

That reversed a marked underperformance over the past month as the market worried about a gloomy trading statement from Thorn Lighting, slightly unfairly as the two companies are not really comparable.

Forecast profits of pounds 15.6m to next April, followed by pounds 17.3m for 1998, put the shares on a prospective price/earnings multiple of 13 falling to 12.

Compared with the growth rate, that is not demanding and the shares are marginally undervalued.

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