Manufacturing shares set for prosperous year

Manufacturing companies are leaner and fitter than ever and are set for a successful year on the stock market, according to research by Close Brothers Corporate Finance.

Businesses are embracing the possibilities offered by e-commerce and extending their activities to provide services which add value to their existing products. Many are also streamlining their operations, making them more profitable, and it will not be long before investors respond, the research suggests.

The report, published this week, confirmed that industry had suffered an extremely difficult year on the stock market in 1999, with a large number of companies leaving the exchange through mergers and acquisitions. By contrast, the high technology sector reigned supreme, as the FTSE technology index outperformed the engineering and machinery index by 56.1%.

Close Brothers believes this gap will soon start to narrow, however. The large falls in technology stock prices this week may suggest that the bubble has finally burst on high-tech start-up firms, and could point to a return to popularity for less glamourous, more traditional manufacturing companies.

Mark Wrightson, chairman of Close Brothers Corporate Finance, said many UK manufacturers have responded to the difficulties of the past year and emerged as more efficient and competitive businesses. This efficiency is likely to be increased with the adoption of e-commerce and its use in purchasing components, product sourcing and distribution.

New technologies offer the possibility for manufacturers to supply products directly onto customers’ production lines. The report argues this direct link will create a competitive edge, while the ability to conduct wider component searches among suppliers will result in significant cost savings.

Traditional manufacturers have also undergone drastic restructuring, including disposing of unwanted sections of their businesses to make themselves more attractive to investors, Wrightson said.

Examples given by Close Brothers of companies reviewing their activities to become leaner operations are Marconi, which has become a communications business, and Invensys, which has disposed of many of its divisions to focus on the electronics sector.

The report also predicts that the recent trend among large manufacturing organisations to buy smaller, weaker companies will continue into 2000. This should create large, more efficient and well-managed companies, again sparking interest from the investment community.