THE INVESTMENT COLUMN : St Ives spends its way to profits

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The Independent Online
St Ives stands as a testament to the virtues of investment. While most rivals were constrained by recession or debt, Britain's leading printer has pumped £100m into its business in the past five years. That has maintained profits through the dog years of the early 1990s and is allowing the group to lever margins on the back of the revival in its main markets of magazines and books.

Latest figures announced yesterday showed the underlying net margin has advanced from 10.3 to 12.3 per cent in the six months to January. That was good for a 31 per cent rise in pre-tax profits to £15.7m, after disregarding the £4.9m goodwill write-off on disposals in the comparable period, and was achieved on a mere 9 per cent gain in sales to £128m.

Admittedly, St Ives got a big boost from the turnround in its US operations, where a better product mix and higher efficiency reversed a £118,000 loss into profits of £870,000. But the group's ex-merchant banker chairman, Miles Emley, says all divisions contributed to the increase, except financial printing. St Ives is the market leader in printing annual reports for quoted companies, but the dearth of bids and deals in the City meant its Burrups subsidiary had fewer weighty offer documents to print, which left divisional profits flat.

In magazines, where the group commands about 20 per cent of the market for web-offset printing, Mr Emley said they had seen the busiest autumn for some time and there was also a strong performance in hardback books.

The increased volumes helped capacity utilisation rise by "a modest single- figure" percentage to somewhat over 80 per cent, boosting margins in the process. They should be kept moving ahead by new plant due to come into production from this autumn, which will also raise capacity by up to 15 per cent.

In all, St Ives plans to spend between £65m and £70m over the rest of this year and next. But even that hefty capital expenditure budget may not make much more than a dent in the group's cash balances, which stood at £35.5m in January, given the strong cash flow.

Mr Emley continues his lengthy search for acquisitions, with Europe and the US both possible target areas, but he retains a healthy distaste for overpaying. In the meantime, shareholders should be pacified with the 32 per cent rise in the interim dividend, even if part of the increase represents a rebalancing with the final, and likely further progress towards the company's target of regaining its peak margins of 15 per cent in the 1980s. Full-year profits of over £32m would put the shares, up 13p to 362p, on a forward multiple of about 16. Reasonable value.