Low & Bonar

HOLD

07/02/2012 Ben Jaglom

Performance materials specialist Low & Bonar (LWB) reported a 26% rise in profits amidst considerable growth in its yarns business.

The FTSE Small Cap constituent declared adjusted pre-tax profits of £23.4m (2010: £18.6m) on sales that increased 13% to £388.7m for the year to November 2011. Earnings per share gained 35% to 6p while the dividend rose 31% to 2.1p.

Its performance technical textiles division, which includes products such as yarns (fibres used in industries such as ropemaking), carpet tile backing and agrotextiles (fibres used in agriculture) saw revenues rise from £239.2m to £269.3m with the group noting this was driven by what it describes as 'continued progress' in markets such as Saudi Arabia and China while its 'core' German, French, Benelux and Scandinavian territories produced 'good performances'.

Its Technical coated fabrics division - which makes products such as curtains for lorry trailers and advertising banners - also performed well, growing sales from £105.4m to £119.4m with profits climbing from £9.7m to £10.7m. Low & Bonar remarked a 'weaker Italian market' was offset by 'strong growth with new leisure ranges' in Eastern Europe.

Looking ahead Low noted it had spent £12.1m over the year on property, plant and equipment over the year and was currently investing in a joint venture with the National Petrochemical Industrial Company in Saudi Arabia for the manufacture of products for the civil engineering sector in India and the Middle East.

Analysts at Numis are forecasting pre-tax profits of £25m (EPS: 6.3p) on sales of £396.6m for the year to November 2012. In 2013 profits of £28m (EPS: 6.9p) on revenues of £408.4m are pencilled in. A dividend of 2.35p and 2.59p are pencilled in for 2012 and 2013, respectively.

Last rated by Growth Company Investor last July at 73p the shares currently trade at 58p having since lost 20.5%. A group with growing exposure to emerging markets such as Saudi Arabia should help to offset weakening markets elsewhere. While its capital growth prospects look limited the shares offer a respectable yield of 4%. We retain our hold rating for now.