The Investment Column: Rubicon allays the market's fears

Rubicon operates in hi-tech markets, but its shares languish on a distinctly low-tech rating. This is not entirely unfair: making metal cases for personal computers and then assembling the other bits hardly requires a huge amount of technical expertise. Add to that two rather dull divisions involved in specialist castings and lead products, as well as a profits hiccup last year, and it's not hard to see why the City treats Rubicon with a certain amount of caution.

Yesterday's interim results, showing an 18 per cent increase in operating profits to pounds 12m, will have gone some way to ease the market's fears. Profits in the contract manufacturing division were up almost 50 per cent on the back of strong demand from IBM and Compaq. Sales of cash machines also increased, while the magnet division posted a 39 per cent increase in earnings. Profits in the specialist castings and lead divisions were down, but Rubicon has decided these units are peripheral and it would sell them if it could get a good price.

The company could certainly do with the money. Capital expenditure will reach about pounds 15m this year, which with the deferred consideration on acquisitions will take Rubicon's gearing to about 90 per cent. Even so, its cash flow and interest cover remain healthy.

Looking ahead, the risk remains that one of Rubicon's main PC customers switches suppliers at relatively short notice. But Tim Wightman, chief executive, is trying hard to win new customers and broaden the spread of the business. Meanwhile, Rubicon is plugged into a growing market which should help its bottom line.

HSBC James Capel, the company's house broker, forecasts a 37 per cent increase in pre-tax profits to pounds 19.5m this year, placing the shares on a forward p/e ratio of just 11. With more growth to come, the shares, up 22.5p to 171.5p yesterday, offer good value.