View from City Road: TI's promise still holds good

Click to follow
SHARES of TI Group have been put through the mangle since the acquisition of Dowty Group last summer. The share price has underperformed the stock market by almost 30 per cent. This could be changing.

A sequence of grim news about production cutbacks at Airbus and, less significantly, Boeing, has weighed heavily, as at Rolls-Royce. TI's 1992 results, showing a fall in pre-tax profits from pounds 105.2m to pounds 87.4m after charging a pounds 20.4m exceptional loss on the sale of its thermal equipment business, confirm that Dowty aerospace has had a tougher time than TI expected.

The good news is that Dowty's polymer activities have done better than expected as TI lifted margins from 9 to 12 per cent in just six months. So TI's original promise of no material dilution from Dowty in 1993, after a year in which earnings fell by 18 per cent before exceptionals, still holds good.

TI's 'non-core' older UK businesses did badly last year and accounted for 3p of the 4p fall in earnings per share. They have been parcelled up with unwanted bits of Dowty into a pounds 200m division with profits of pounds 10m that will be sold progressively.

Star turns at TI were again Crane seals and Bundy piping, which produced organic profits growth of 13 and 11 per cent respectively. Earnings growth, assuming pre-tax profits above pounds 130m, could be minimal in 1993, but the combination of recovery and strong organic growth will make a p/e of 17.5 and a yield of 4.7 per cent at 316p, up 6p, look increasingly attractive.