Tomkins finds big is still beautiful

The Investment Column

Greg Hutchings, chief executive of buns-to-guns conglomerate Tomkins, looks more and more like a laid-back Californian as his hair heads towards his shoulders but he was on a short fuse yesterday discussing the City's persistent refusal to recognise his company's achievements and potential.

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.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'