Nokia forces CRC on repair course

Last June, electronic equipment repairer CRC faced disaster. Mobile phone giant Nokia, which had accounted for 70 per cent of its 2002 revenues, renegotiated its contract with the company. Faced with this uncertainty, CRC's shares halved to a 72.5p record low.

However, chief executive Alan McLaughlin has achieved a swift turnaround, putting the business in better shape than when it relied on one dominant customer. The shares have bounced back to 159p but they still offer value, yielding 4.4 per cent and trading for under nine times earnings.

Recently-released figures for 2003 naturally looked disappointing. Sales to Nokia alone dropped by £45 million so an overall £38 million fall in turnover to £71 million represented something of an achievement. Indeed, non-Nokia business grew by 24 per cent to £35 million.

Nokia still accounted for more than half of revenues but that will certainly change this year when the mobile phone maker is due to withdraw its spare parts and warranty business from CRC.

McLaughlin's major response to the hole this leaves in the group's business was to make some canny German acquisitions last autumn.

The first involved German manufacturing giant Siemens, which wished to outsource its repair arm and no longer needed the factory set up for this purpose. CRC stepped in to snap up the plant for net asset value and at the same time gained a ready-made contract from Siemens.

The second deal was the acquisition of Berlin-based Wincor Nixdorf Engineering. Overall, for an initial outlay of £1.2 million, CRC has won £55 million of contracts over the next three years. The deals were only concluded in December, so only one month of the new revenues was included in the 2003 results.

Equally importantly, CRC is no longer just a repairer of in-warranty mobile phones. Two years ago, 80 per cent of the company's revenues came from the communications industry – most of that from Nokia. Now McLaughlin expects 46 per cent of turnover this year to be IT-related with a further 18 per cent to come from set-top boxes. Only 36 per cent will relate to communications equipment.

In just six months, McLaughlin has done a remarkable job of broadening both CRC's customer base and the variety of the products it repairs.

Although the loss of Nokia business resulted in a near halving of CRC's profits – to £4.3 million – last year, the group still managed to produce strong operating cashflow of £7.3 million. And, showing faith, the board maintained the dividend at 7p a share.

In addition, the group has not severed links with Nokia and still expects substantial business to come its way. It will be repairing the next generation of mobile communication equipment, such as camera phones, which were a popular Christmas present.

The group's Polish plant has also won the contract to repair Nokia phones from Austria. As McLaughlin comments, 'They are still the leading mobile phone maker and we want to do business with them.'

Other highlights include repairing set-top boxes for Telewest and NTL. This is proving to be a fast growing business. A repair contract with BSkyB comes up for renewal this summer and CRC will be keen to win this as well to establish dominance in this area.

McLaughlin has not ruled out further acquisitions on the continent either.

Analyst Robert Corden of Charles Stanley reckons the group should make £80 million of sales this year, producing more than £7 million pre-tax profit and earnings per share of 18p. This puts the shares on a p/e of just 8.8. Together with the generous yield, this makes them attractive.