The investment column: Senior makes quick recovery

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The Independent Online
MAKING flexible metallic tubing for car engines, jets and other industrial markets may not be glamorous but Senior Engineering has made it a highly profitable activity. The company hit problems a few years ago with its thermal engineering business, but that was sold last year and Andrew Parrish, who joined as chief executive from Williams Holdings towards the end of 1996, has impressed the City with the speed of the company's recovery.

Yesterday's announcement of operating profits up 17 per cent to pounds 42m were slightly ahead of exceptions and again it was the Flexonics tubing business that was the star performer. Profits there rose by 40 per cent with return on sales up to 11.8 per cent from 9.4 per cent the previous year.

The strategy to develop Flexonics geographically and acquisitions in the last year have included deals in California and India as well as in the UK. Since the year-end other deals have been signed in Holland, Denmark and Spain in areas such as aerospace, industrials and precision tubing.

Mr Parrish wants to build Senior into a pounds 1bn sales business by the end of the decade. While Flexonics will remain the core, it seems other under- performing businesses in the engineered products and services division may be sold if returns do not improve. Profits there fell from pounds 8.4m to pounds 3.1m due to difficult markets.

Asia may prove a happy hunting ground for acquisitions and Mr Parrish wants to the region to account for 10 per cent of group sales by the end of next year from its current 2 per cent. Mr Parrish has already made three visits to the Far East this year and has identified three or four markets for expansion. Top priorities are Japan and South Korea. With net debt of pounds 19m, representing gearing of 15 per cent, the group certainly has the fire-power for more deals of up to pounds 60m. But Mr Parrish is not worried by larger deals and may tap the market for more cash to fund them

There may be more scope to improve margins in Flexonics, though it is the other businesses, where margins are only 2 per cent, that offer the biggest opportunity.

The strong pound is a problem but Senior is not one of manufacturing's whingers, preferring to compete on the grounds of quality and service.

After their slump in 1994 Senior shares have been rising strongly from their low of 68p and reached a new high of 202p yesterday, up another 18p.

With analysts forecasting profits of pounds 50m this year, the shares trade on a forward rating of 17. That seems about right. Hold.