Buy for recovery, is the message from stockbroker Henry Cooke on Britain’s biggest machine toolmaker, 600 Group, whose shares took a heavy pasting after a profit warning in January.
Then 600 Group’s news that stocks of its new computer-controlled lathe, the Tornado, were building up with distributors, combined with `short term uncertainty’ in the marketplace, set brokers slashing their profit estimates.
Henry Cooke believes the dealers’ Tornado stocks have now been significantly reduced, and that UK demand is ahead of production. Sales continue to be strong in the US.
The broker forecasts that updated versions of the Tornado and the semi-automatic electronic Alpha lathe, which are due soon, will offer a `quantum leap’ in competitiveness and improved margins.
Henry Cooke thinks that while the strong pound will impact adversely on overseas sales short-term, that will soon be offset by increased market share. The company has appointed new US distributors and is stepping up direct marketing in Europe.
The 600 Group is due to report for 1996-97 on 2 June. Ahead of the profit warnings, the City consensus was for £14.5m pre-tax (£10.5m). Now that those estimates have been revised, Henry Cooke expects profits of £11.1m.
For the current year, Henry Cooke forecasts £11.8m pre-tax with the dividend rising to 5.25p, still covered more than three times by earnings.
The broker first recommended the shares at their year’s low of 121p (against 146p now) and targets 160p for them short term.