The Investment Column: The virtues in a conglomerate
Tuesday 13 January 1998
Which is precisely what happened to Tomkins. Performance from fluid controls and building products, as well as its professional division - which includes struggling bicycle manufacturer Murray and Smith & Wesson, the handgun maker - was pedestrian. But by virtue of storming results from the food and newly created automotive polymers divisions, Tomkins was able to maintain its famously unbroken record of profit growth. Adjusting for the fact that the previous half year lasted a week longer than this time, earnings per share rose by a fifth.
On other financial criteria, too, the group can hardly be faulted. It is particularly good at turning profits into cash, churning out 17.7p of free cash per share in the six month period. This still easily covers the interim dividend, which was bumped up by a healthy 14.4 per cent to 3.50p.
Can Tomkins keep this up? The City clearly thinks not. A similar record for a company in, say, the media sector would produce a sky-high share price rating. But now that Tomkins has been forced to give up its search for large, underperforming companies in unrelated areas the belief is that the growth will dry up.
Tomkins maintains that it can continue to expand by bolting businesses on to its existing operations. It says it has identified several opportunities which, when combined with the remaining pounds 40m worth of shares it still has to buy back, would take its balance sheet from a net cash position of pounds 188m to the 15 per cent gearing target it has set for itself. If the deals don't come off, Tomkins will simply buy back more shares.
Given the City's growing attraction to debt, that position is still far too conservative. Tomkins, however, won't be shifted. And as long as it continues to deliver growth, investors cannot afford to be too critical. Analysts are looking for full-year profits of about pounds 495m putting the shares, down 10p yesterday to 300p, on a pitifully low forward p/e ratio of just 11. Fashion can be taken too far: Tomkins deserves better.
- 1 California man brutally beat 82-year-old Sikh grandfather he mistook for 'one of those people'
- 2 Amber Peat: Body found in search for missing 13-year-old who left house after argument with her parents
- 3 School kitchen manager 'fired from Colorado school for giving hungry students free lunches'
- 5 Charles Kennedy 'had better judgement drunk than many sober politicians' says Ian Hislop
California man brutally beat 82-year-old Sikh grandfather he mistook for 'one of those people'
Amber Peat: Body found in search for missing 13-year-old who left house after argument with her parents
School kitchen manager 'fired from Colorado school for giving hungry students free lunches'
Alton Towers closed after horror crash on The Smiler raises safety questions for theme park
Alton Towers crash: Four guests seriously injured as Smiler ride carriages collide
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
Michael Gove determined to scrap the Human Rights Act – even if Scotland retains it
Threat to scrap Human Rights Act could see UK follow Nazi example, warns UN official
Church of England 'one generation away from extinction' after dramatic loss of followers
iJobs Money & Business
£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...
£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...
£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...
£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...