Investment column: Lavendon

LAVENDON BLAMES a private investor tip sheet, which last published a profits forecast below market expectations, for the fall in its shares from 545p last year to 226p in January.

But shares in the group had enjoyed a good run and some profit taking was justified. They have since recovered and the question now is whether Lavendon can continue to deliver double-digit profits growth.

Lavendon's sole product, powered access equipment, is used as a substitute for scaffolding by the construction, aerospace and media industries. The tiny company faces competition from large and more diversified plant hire suppliers such as Ashtead. It claims to have competitive advantage because it is a specialist and its service teams do not need to be trained in a variety of different technical skills.

Having built up a 15 per cent share of the UK powered access market, it has set its sights on Germany. Here it has just 4 per cent of the market. It is spending pounds 22m this year on depots and equipment to take that to 15 per cent too.

The company has been surprised at how easy the German market, dominated by just two players, has been to penetrate. Meanwhile, it claims it would be hard for any other entrants to replicate its success because Lavendon's existing depot network puts it one step ahead.

WestLB Panmure expects pre-tax profits of pounds 8.2m and earnings of 23.4p per share this year, putting the shares, at 420p, on a forward p/e of 18. Given the hefty expenditure required to achieve Lavendon's expansion plans, the rating is fair and the shares are looking fully valued.