The Investment Column: Umeco

ONCE AGAIN, Umeco's shares jumped 11 per cent after it posted results. Is this the perpetually undervalued company? The near-doubling in its share price since April suggests that Umeco supplies switches for the fast-growing telecoms industry. In fact, it supplies nuts and screws to the aerospace sector, which is widely perceived to be on the verge of a downturn. But Umeco has carved out a niche for itself, acting as a warehousing intermediary between component supplies and the likes of Rolls-Royce and British Aerospace.

To enhance its component range and distribution network, Umeco has been on the acquisition trail, spending pounds 24m this year. RD Taylor, a loss-making adhesives distributor acquired in July, is already in the black. Umeco is making progress at doubling margins in the rest of the Ased companies acquired from TI Group at the same time. In the existing businesses, Pattonair International, the components distributor, is enjoying record orders. Its half-year sales were up 35 per cent year-on-year.

The trend among aerospace companies towards farming out the sourcing of components should see Umeco continue to grow even if its customers begin to suffer weaker orders. Analysts expect full-year pre-tax profits of pounds 7.4m and earnings of 31.9p per share, rising to pounds 8.9m and 38.6p in 2001, putting the shares, up 52.5p at 532.5p yesterday, on a forward p/e of 17. Umeco still has a fraction of its addressable market and its success at making inroads suggests the shares are still undervalued.

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