The Investment Column: Strong pound hits Haynes

Haynes has 95 per cent of the UK market for car-repair manuals and 60 per cent of the US market, which has seven times more vehicles on the road. Dominating on both sides of the Atlantic puts the Somerset- based company in a happy position, but it also makes it vulnerable to exchange rate fluctuations. That and its dependence on the price of paper can make short-term earnings rather volatile.

To mitigate the first of those problems, Haynes is growing its French and Swedish language sales, while back at home it is producing cycle and caravan repair guides and planning expansion into DIY manuals for the home. But it is still highly cyclical.

The US business is a nice little earner, generating a healthy return of 30 per cent of turnover. It accounts for 80 per cent of group turnover and 60 per cent of profits. But the unexpected strength of sterling against the dollar, and to a lesser extent against the French franc, cost Haynes pounds 170,000 in the six months to the end of November.

The interim figures yesterday showed a rise of 9 per cent before allowing for currency effects, and just a 2 per cent gain to pounds 2.24m afterwards. But raw material costs, which held back profit growth in the previous two years, do now seem to have peaked on both sides of the Atlantic, and in the US Haynes is hoping to piggyback on the rapid expansion of autopart chains such as Autozone, which is increasing its outlets at a rate of 300, or 20 per cent, a year.

The City has already factored in a fall in earnings in the second half, to give a small decline in full-year profits from pounds 6.01m to pounds 5.91m and a 6 per cent earnings slide to 23.4p. On that basis the shares, down 10p at 235p yesterday, look unexciting even on a modest 10 times prospective price-earnings ratio. Continued strength for the pound might cast doubt on the forecast 11p dividend, despite a 0.5p rise to 5p at the interim stage. Expensive.

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