The Investment Column: Sentiment keeps Brammer down

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The Independent Online
Brammer, the industrial services group which distributes parts for industry, has taken a beating this year along with much of UK manufacturing. After five years of steady growth, which has seen the shares climb steadily from 200p to nearly 700p, the stock has tumbled sharply in recent months. Yesterday on interim figures slightly ahead of expectations they rose 7.5p to 576p.

The main reason for recent weakness is sentiment, with investors fighting shy of industrial stocks which are exposed to the strength of sterling. A mild warning on profits earlier this year, prompted by a subdued UK manufacturing market, also knocked Brammer.

The fears may be overdone. On full-year forecasts of pounds 30m, Brammer shares trade on an undemanding forward rating of 13. Yesterday's half-year figures showed the group had managed to make progress in spite of the hit on currency translation. Half-year profits were 10 per cent ahead at pounds 14m, though the increase would have been 15 per cent without the hit from the pound.

Brammer's main business is distributing its range of 500,000 components to around 45,000 customers. The company's key strength is that although no single customer accounts for more than 1 per cent of sales, the company has managed to build significant market share in certain sectors. Distribution profits increased by 15 per cent, at constant exchange rates, though the European bearings market remains sluggish.

Livingstone, which rents out equipment such as industrial computers, did even better with a 19 per cent profits hike, even if Germany was weakened by the loss of a contract. But the second half has started better and Brammer feels the economy is strengthening.

Acquisitions are expected, although most of the deals in Brammer's sectors are with small, family-owned companies. Longer term the shares look reasonable value at these levels.