Tomkins finds big is still beautiful
The Investment Column
Twice a year Tomkins wheels out an impressive set of data to back up its argument that, despite the range of its products from Hunter wellies to Smith &Wesson handguns, from loaves of bread to bicycles, it is no Hanson or BTR and should not be rated as if it were. To an extent, investors have cottoned on and Tomkins shares have outperformed the diversified industrials sector by 45 per cent over the past three years. Against such a dismal backdrop, however, that does little to distract from the fact that the shares trade on a sceptical multiple of earnings.
Figures for the half year to October were flattered by an extra week compared with last year and boosted to an extent by the strength of the pound, especially against the dollar, but they were yet another very impressive performance, with earnings per share up 18 per cent and a 13 per cent rise in the dividend, completing an unbroken sequence of increases since 1984.
The figures were another snub to cynics who questioned the Ranks Hovis McDougall acquisition five years ago and suggested that the latest big purchase, of automotive hose maker Gates, is going to be a much quicker and easier integration than the bread maker. It is proving a long education process but analysts are finally getting the message that, despite its apparent rag-bag of businesses, Tomkins really does have a focus - on manufacturing.
The City is quick to call on Tomkins to bend to the latest business school fashion and the company doggedly refuses to be swayed by the argument. Its refusal to follow Hanson down the break-up path has been vindicated by the failure of that demerger to create any shareholder value, and the latest refusal to hand money back to shareholders has more than a ring of common sense about it.
Tomkins reckons it generates a return on its capital of getting on for 20 per cent compared to the cost of that money of between 12 and 13 per cent. Plainly there would come a point when its share price was so depressed that a buy-back was the best use of the company's pounds 370m cash pile, but it is not now. The restrictions it would place on any cash-funded acquisition would be unacceptable.
Tomkins' problem is that, despite the steadiness of its earnings growth, the scale of the rise is so pedestrian. Profits of pounds 425m in the year to April would imply an 11 per cent increase and the forecast for the following 12 months is even less exciting. A p/e ratio of 12 is harsh but does not represent a massive valuation anomaly. Solid value.
- 1 BBC told new political editor must be 'impartial' with Nick Robinson reportedly stepping down
- 2 Humans of New York image of crying gay teen receives best response yet from Ellen DeGeneres
- 3 Number of young homeless people in Britain is 'more than three times the official figures'
- 4 Motorists taunt suicidal woman on bridge and tell her to 'get on with it'
- 5 The map showing the most dangerous tourist destinations in Europe, according to the Foreign Office
BBC told new political editor must be 'impartial' with Nick Robinson reportedly stepping down
Isis propaganda video shows 25 Syrian soldiers executed by teenage militants in Palmyra
Humans of New York image of crying gay teen receives best response yet from Ellen DeGeneres
Number of young homeless people in Britain is 'more than three times the official figures'
The map showing the most dangerous tourist destinations in Europe, according to the Foreign Office
More Britons believe that multiculturalism makes the country worse - not better, says poll
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
iJobs Money & Business
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...