Companies: HRN   

Scalextric and model train maker Hornby unveiled a seventh successive year of growth – and a profit from its European subsidiaries signals the beginning of a potentially exciting new chapter.

The fully listed group lifted profits 8% to £8.2m, with a £453,000 operating profit from just a few months from its subsidiaries in Italy, France and Spain. Sales fell 2% to £44.1m mainly because of the exceptional spike last year from the launch of its Live Steam product.

Hornby bought French distributor MKD in December, following 2004’s purchases of Lima in Italy and Electrotren in Spain. However, German hobbyists constitute the largest presence in the European market, buying seven times more than those of the UK. Management hopes to pick up a German distributor by the end of the year, but can start selling there already as Lima has a range of German models.

Chief executive Frank Martin maintains European expansion is made even more exciting by the fact that Hornby ‘bit the bullet’ and outsourced production to China a few years back. This means it has a few years to take a slice from the model train majors, which have not outsourced production.

Added to this, Hornby’s high-margin ‘Digital Control System’ for model trains launches in the UK in September and the Nuremburg toy fair next year will prelude the Europe-wide launch. Furthermore, an affordable digital Scalextric product is being launched this year and a potentially lucrative deal has been tied up with Japan’s largest toy company.

House broker Bridgewell forecasts £8.6m and £9.8m profits for this year and the next, with 15.8 and 17.8 earnings putting the shares on multiples of 14 and 12.5. Worth holding.

Hornby	LSE	£42.74m	112.50p	-5.50p
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