Companies: TAN   

Surging demand for electric vehicles, prompted by rising oil prices plus the tax and environmental advantages, is just what the doctor ordered at Tanfield. The company bought Smiths Electric Vehicles (SEV) in October last year. With a string of recent contract announcements and hopes of more to come, the acquisition looks to have been well timed.

A specialist engineering and manufacturing business, Tanfield came to AIM in December 2003 by way of a reverse takeover of the troubled digital imaging business, Comeleon. Since then, the make-up of the business has radically changed.

The company has moved away from the low-margin manufacturing of precision components to focus instead on assembling, and got out of the automotive parts business altogether. 'Although we made reasonable money on it we could see the writing on the wall,' says chief executive Roy Stanley.

But the big move was the acquisition of SEV for £2.2 million in cash and £100,000 in shares – a seemingly remarkable deal for the AIM-listed group. SEV makes a variety of electric vehicles, from cherry-pickers to airport support transporters. In terms of revenues, the deal effectively doubled the size of Tanfield.

SEV's market is expected to grow rapidly. Electric vehicles cost around 25 per cent less than comparable diesel vehicles to run and are completely emission free, affording them considerable environmental and tax-related benefits. Several major contracts have been secured since SEV was taken over, including two from airport baggage-handling operators and one from a dairy chain.

A new vehicle capable of traveling at up to 30mph with a range of 60 miles will be launched early this summer. Stanley reckons this will be perfect for all local council-based services. 'It always seems a bit of a nonsense to me that we use diesel vehicles to collect people's recycling,'he points out.

Add in the £5 million of turnover SEV generates each year for servicing Britain's fleet of milk floats and the acquisition appears something of a coup for Tanfield. Stanley says he had been trying to buy the formerly family-owned business for the best part of ten years. Tanfield's status as a public company made all the difference.

The change of focus at Tanfield's engineering operations also appears to be paying off. It has picked up a series of licensed assembly contracts from the likes of Caterpillar, Rolls-Royce and others – deals that typically run over long periods (up to ten years) and provide steady revenues and higher margins.

Similar agreements in the power generation, engineering and defence sectors afford the company a firm foundation from which to grow.

Even the much-maligned Comeleon printing business, which initially offered consumers a chance to customise their mobile phones and other mass-produced consumer goods, appears to be picking up. 'Comeleon is quite small,' says Stanley, 'but it is actually doing pretty well. Our plan is to keep it below the radar screen for the time being, get it working properly and then grow from there.'

The net effect of Tanfield's various moves has been pronounced. For the year to December 2003, Comeleon lost £5.1 million before tax and goodwill on sales of £2.9 million. In 2004, Tanfield's input is reckoned to have lifted sales comfortably over the £12.5 million mark and cut Comeleon's losses back to £1.3 million.

For the group as a whole, interim figures for the first half of last year showed a £2.6 million loss, but this was after £1.6 million of exceptional items related to the withdrawal from the automotive operations.

With goodwill and amortisation added back in, Stanley concedes that the figures 'may actually look pretty sick'. Yet the underlying pattern is positive and for 2005 house broker Daniel Stewart believes SEV's influence should guide the group through to profits of £2.4 million on sales of £26 million.

On that forecast, the shares trade on a prospective 2005 p/e of 13.9, marking Tanfield out as a decent bet for anyone eager to back that rarest of species – a British manufacturing success. As Stanley puts it disarmingly: 'I think we're really on the cusp of something here.' It is hard to disagree with him.

Tanfield Group	AIM	£19m	5.13p	0.16p
Click here for interactive charting
Other company articles:
Tanfield			01/07/2008
Tanfield powers forward			22/04/2008
New era at St Helen’s			10/08/2007
Tanfield: bank that 400 per cent profit			30/03/2007
Tanfield: another week, another announcement			26/01/2007