Concern over the performance of new acquisition Burnfield, plus the high value of the pound, combined to depress shares in Fairey Group.
The City had expected the measuring instruments concern to enhance Fairey earnings this year. In fact its impact will be neutral.
`Our accounting systems are more conservative than Burnfield’s,’ said Fairey chief executive John Poulter. He brushed aside concern about digital controls maker Red Lion in the US, which had a dull 1996.
While two-thirds of Fairey’s profits are dollar-related, and earnings are adversely affected by a strong pound, Poulter said the issue was overstated, though he conceded it could take a few percentage points off Fairey’s profit growth.
`I am not not wringing my hands at this stage,’ he said. `Let’s see how exchange rates actually go this year.’
He reported 1996 profits pre-tax up 29% at £44m on sales up 26% at £247m. The dividend, up 13% at 9p, is covered 4.5 times by earnings.
Operating profits were up 33% at £47m. The biggest part of the business, electronics – now bigger still with Burnfield in it – and aerospace and defence, both achieved near-20% margins. In the electrical power and filtration divisions, margins were around 16%.
The stockbroker AlbertE Sharp argues that, while the shares may drift, the high quality of the company and its management is unchanged. It forecasts profits this year of £52.2m with earnings of 36p a share and a 10p dividend.
`The company’s great strength is its solid exposure to the US electronics and process controls industries,’ said sector analyst John Dean. `It’s difficult to find in manufacturing a company with exposure to markets whose growth potential tops inflation. This is one.’