Zotefoams pays off handsomely

Zotefoams, the speciality foam maker which used to be part of BP, has been one of the best new issues of last year.

Floated at 145p last February, the shares have doubled after finishing a further 9p ahead yesterday at 290p. The market warmed to the group's first set of full results showing pre-tax profits 41 per cent ahead at pounds 7.6m in the year to December. Sales were 29 per cent higher at pounds 22.8m.

Zotefoams specialises in the manufacture of foam used in toys, helmets and packaging and has been buoyed by growth in its main markets of Europe and North America.

Sales to the toy market have grown by 18 per cent thanks largely to the success of its three-dimensional foam jigsaw puzzles. Foam packaging sales were 18 per cent ahead.

The growth seen in 1994 continued throughout most of last year, eventually being constrained only by Zotefoams' production capacity, which has been running flat out. Capital projects to expand that capacity have been brought forward and should be ready by next month.

Two other potential constraints have been rising raw material prices and de-stocking, but Zotefoams seems to be coping well. Raw materials such as chemicals account for only 20 per cent of the company's manufacturing costs. The price of its core chemical rose by 34 per cent during the year.

However, the company was able to pass the increases on to customers and margins increased by 1.9 percentage points during the year.

De-stocking has been more of a problem and, though Europe is picking up, the process is still continuing in America.

This has given rise to a relatively cautious outlook for the current year with the company seeing reduced activity in some markets.

Analysts are forecasting profits of pounds 8.5m for the current year, which puts the shares on a forward rating of 20. A premium to the market, but still attractive over the longer term given the growth prospects.

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