The Investment Column: Wyco confounds City sceptics

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The Independent Online
The City thinks Wyko's businesses are a bit dull. And let's be fair: distributing bearings and rewinding electric motors is hardly a growth industry. That said, Wyko has an impressive track record. Through a series of canny deals and competent management, the company has turned losses of the early 1990s into an expected profit of pounds 11.6m for the year to April.

So it's no surprise that the company's executives are a bit miffed at their treatment by the City, which has taken to valuing the company's shares as if they belonged to any old manufacturer. But if investors had any fears that Wyko would be squeezed by the slowdown among exporters, or would run out of steam, they were dispelled by yesterday's interim results, which showed a 62 per cent jump in operating profits to pounds 6.18m and a 37 per cent rise in earnings per share, to 6.07p.

Despite flat sales in industrial distribution, the group squeezed profit margins up by a full percentage point to 10 per cent. The Electro Mechanical Services division also put in a strong performance, helped by a first contribution from recent acquisitions. Even the smaller Precision Engineering unit chipped in with a 17 per cent profits increase.

True, Wyko will need acquisitions to keep up its growth rate. But the group reckons there are plenty of opportunities, especially among smaller distributors. By pushing different products and more volume through its distribution network, Wyko aims to get operating margins up to 15 per cent.

With the full year interest charge likely to be covered a comfortable 12 times by profits, it can afford to splash out. Even before any corporate activity, analysts expect earnings to grow by 30 per cent this year and 12 per cent in 1999. On a forward multiple of less than 13 Wyko's shares, up 3p yesterday to 152.5p, look cheap.