US legal cloud over Lucas lifts
Since the beginning of 1994 Lucas has lagged behind its engineering peers, partly because of the cloud of litigation, partly because the market was holding fire to see just how quickly Mr Simpson could get to grips with his new charge. Over the past 18 months Lucas's shares have trodden water, marginally under-performing the market as a whole. Over the same period BBA has beaten the All-Share index by 43 per cent and GKN by an impressive 55 per cent.
The markets Lucas serves are undeniably still tough, but not worryingly so. Aerospace is picking itself off the bottom and arguably could be peaking in two or three years' time just as the automotive markets falter. Double- digit margins on sales of around pounds 500m should make most analysts' forecasts look conservative.
In motors, Lucas is heavily biased towards the UK and Europe, which is good news in the face of an expected downturn in the American car market. Relatively flat markets in Europe shouldn't be a concern, with Lucas holding strong positions in fast- growing areas such as diesel technology, intelligent braking and other electronics.
Before the exceptional charge, pre-tax profits next week should top pounds 140m, from sales of pounds 2.95bn, a great deal better than the performance of the last few years but still hardly a stirring return on sales of less than 5 per cent. By the time tax has wiped out the post-exceptional profit, earnings will just about break even, so reserves will have to be raided once more for a maintained full-year dividend of 7p.
The flip side of still-poor margins, of course, is the high degree of operational gearing still in Lucas's now-clean businesses. By next July profits should have reached pounds 215m, covering the payout twice. The cover could have reached three times by the following year.
That puts the shares on a prospective price/earnings ratio of 13, with a yield of 4.5 per cent. Given the recovery prospects, that is pretty good value.
- 1 BBC election debate: The one photo that summed up the whole 90-minute leaders debate
- 2 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 3 18th century sex toy found in 'toilet of sword fighting school' in Poland
- 4 'I wish my teacher knew...': Young students share their 'heartbreaking' worries in notes
General Election 2015: David Cameron catching up in polls – but he badly needs a clear lead
The Hubble Space Telescope's amazing journey 25 years on
South Africa xenophobic attacks: Shops looted and violence on streets of Johannesburg as foreigners are forced to hide in police stations
Earthworms rain down from skies over Norway, puzzling scientists
18th century sex toy found in 'toilet of sword fighting school' in Poland
The only black face in the Ukip manifesto is on the page about overseas aid
Ukip is the only main political party to not address LGBT rights in its manifesto
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
Russian warships in English Channel 'to conduct anti-aircraft and anti-submarine military drills'
iJobs Money & Business
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...
£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...