The Investment column: TT Group

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The Independent Online
TT GROUP is a barometer for UK manufacturing and despite the optimism of the Confederation of British Industry, the immediate situation is dire.

The group's shares have lagged those of its peers since a failed bid for Hall engineering. A negative trading statement knocked a further 15 per cent off the shares yesterday, prompting executive chairman John Newman to spend almost pounds 800,000 buying into the stock. Has he snapped up a bargain?

TT supplies fastners and climatic controls for Rover Group. In common with Rover, it is complaining about the strength of sterling. The exchange rate has also eroded margins in its glass bottle manufacturing operation, which has been hit by European imports and the growing popularity of plastic.

The investment argument for TT depends on the prospects for the pound- euro rate. Meanwhile, the group is looking to make acquisitions to enable it to offer a wider range of products to its customers.

TT warns demand will be flat this year. But in the businesses where margins are suffering, TT still achieves returns on capital of 40 per cent. Housebroker DKB shaved pretax profits forecasts for this year down almost 30 per cent to pounds 40m. On expectations of earnings of 17.3p per share this year, the shares, which closed down 24.5p at 133p, trade on a forward p/e of 7.8. That's an unjustified discount to their peers given the possibility of a turnaround.