The Investment Column: Umeco

UMECO represents a good argument for owning a widget company. It procures tiny parts - literally nuts and bolts - in large numbers, stores them, and sells them in modest quantities to aerospace companies such as British Aerospace and Rolls-Royce. These bits account for 80 per cent of items most defence products are built from. Umeco frees defence companies from buying and storing excess stock.

Yesterday Umeco cemented its position, buying five businesses from TI. They will beef up its capacity in supplying complimentary electronics parts, and place Umeco in a sound position to cross-sell into the fast- growing European aerospace market, where Airbus is making headway against Boeing. Umeco was the lowest initial bidder and forced the price down further after the preferred bidder pulled out.

Yesterday the group posted pre-tax profits up 45 per cent at pounds 9.2m and sales up 22 per cent at pounds 54m. It hopes to double components sales, currently pounds 35m, on a pro-forma basis after the acquisitions within two years. Analysts expect pre-tax profits of pounds 7.4m this year and earnings of 33.9p a share, rising to pounds 9m and 35.7p in 2001. The shares soared 50p to 415p, but given the barriers to entry in Umeco's business, and the rapid growth potential, they still look undervalued.