Punch Graphix

Punch says its full year results will be ahead of forecasts, after a strong half-year turn in tricky markets. Spun out of Euronext-listed Punch International last year, Punch Graphix designs digital colour printers under the Xeikon brand (selling related consumables and accessories that offer a good source of recurring sales). It also develops imaging systems for off-set pre-press commercial markets.

The results to June demonstrated a 14% up tick in pre-tax profits to €13.3m (£9m), though top line growth was a more modest 7% to €84m (£56.8m). However the revenue result was good going against a record first half of ’05, and operating profits were maintained after hefty spending on sales, management and R&D. ‘We’ve shown we can make good margins, and live with the pressure in our markets’, explained new chief executive Ben van Assche, who pointed to good performances from the digital printing and pre-press businesses. He also flagged up an encouraging increase in the proportion of consumables sales, from 40% in 2005 to 44%.

Analysts at house Altium Securities view Punch as ‘significantly undervalued’ and rate the shares a strong buy on the basis of underlying market growth, top-line growth from Punch and the benefits  to come from new product launches.

For the year, expect pre-tax profits to move north from £12.8m to £15.7m, delivering earnings of 10.2p and placing the shares on a budget forward p/e of 10.3. Prospective yields of 3% this year and next also underpin the investment case, as does burgeoning global use of digital printing. Erstwhile parent Punch International still controls 49%, but if you can get your hands on the shares, do so.