The strong pound’s shadow over engineering exporters is inhibiting the performance of aggregate processing manufacturer Powerscreen. Its shares are trading only in line with the market as a whole despite bullish comments by chairman John Craig at the recent AGM.
Broker Merrill Lynch said it is an opportunity to accumulate the shares.
The company points out that over the past decade Powerscreen has achieved compound earnings growth per share of an annual 15% and has consistently achieved a 30% return on capital. It argues that currency fears for the company are overdone. Last year Powerscreen again achieved record sales and profits, and Craig said the trend continues ‘despite the adverse exchange rate’ with trading ahead in the first quarter to the end of June.
Merrill said that while US growth-oriented funds have bought Powerscreen ‘aggressively’ – owning 30% of the company – UK funds are underweight. It suggests now is the time for City longer-term professionals to build up their positions.
Powerscreen’s strengths are its 30% domination of the global market for aggregate mobile screening equipment where it achieves margins topping 20%. It is developing a similar presence in the mobile crushing equipment market.
A third arm, materials handling, has increased sales tenfold to £155m since it was acquired for £3.3m in 1991.
Powerscreen’s production set-up for the aggregate machinery business is unusual. The company provides the materials and manufacturing space and construction of the huge equipment is subcontracted to independents on a price per unit basis.
The in-house workforce is comparatively small, as are production costs. The use of independent distributors is another cornerstone of the company’s success.
Merrill believes the mobile screeners have the most exciting prospects.