Companies: HVE ��

Whoever becomes New Labour’s next leader and whichever party wins the next general election, it is a fair bet that Britain’s politicians will continue, in the words of Havelock Europa’s chief executive Hew Balfour, ‘to dance round the totem pole of education, education, education’. This is one Blairite slogan which remains as popular with the adherents of Gordon Brown as with David Cameron and it certainly remains music to the ears of Dunfermline-based Havelock, owner of ESA McIntosh, the UK market leader in fitted furniture and equipment for schools.

This division, fuelled by lucrative Private Finance Initiative (PFI) contracts, is currently the best performer at fully-listed Havelock, which has grown significantly by acquisition over the past few years and also fits out shops and supplies point-of-sale displays. In the first half this year, the company’s education revenues grew 21 per cent to �13.6 million out of a group total increased by a more modest five per cent to �42.1 million.

Interim pre-tax profits leapt 116 per cent to �460,000, after amortising intangible items, and operating profits advanced 14 per cent to �1.2 million. Havelock, which made �5.7 million pre-tax in its last full year, does not reveal its divisional profits, but, with margins low in shop fitting, it is clear that education contributed more than its revenue share to group profits.

Pointing to a tenfold increase in government spending in this field to �7 billion over the past decade, Balfour says it is Havelock’s aim to be the ‘one-stop shop’ for main PFI contractors in the government’s school building programme. ESA McIntosh, which was acquired by Havelock in 2001 as a provider of fitted furniture for school laboratories and classrooms, now supplies loose furniture, such as chairs, along with ‘accessories’, such as blackboards, white boards and clipboards.

Havelock’s other divisions have not been progressing so well, though Balfour asserts prospects are improving. He maintains the company has been moving into markets that are less cyclical than basic retailing and now fits out barracks, hospitals and colleges, as well as banks and building societies.

Revenues from retail interiors slipped by �400,000 to �16.9 million in the first half, but Balfour points to a ‘much increased order book and a high volume of work in hand’ at the half-year stage. Point-of-sale display business was marginally lower at �11.6 million for the first six months, after last year’s loss of a major customer when car-servicing group Kwik Fit was sold by its parent, Somerfield.

One legacy of Havelock’s acquisitive past is net debt of �21 million, against shareholders’ funds of �13.3 million. Balfour says net debts should fall to �14 million by the end of the year and points out that interest payments are covered three to four times.

Havelock’s markets have seen a wave of consolidation in recent years. The company has no exact quoted peers, though there are areas of overlap with the likes of Morgan Sindall and Findel.

Balfour says Havelock has considered several ‘interesting opportunities’ among potential acquisitions, but he complains that owners have inflated expectations of what their businesses are worth because ‘private equity players are paying silly prices’. He insists ‘our organic growth prospects are too good to jeopardise them by paying too much for acquisitions’. In these circumstances, rather than attempt one big deal, he sees Havelock as ‘more likely to make several small acquisitions’.

Analysts at broker Charles Stanley see pre-tax profits rising 46 per cent this year to �6.7 million on revenues up �8 million at �116 million, with �7.6 million pre-tax on �124 million revenues for 2008. That puts the 134p shares, up from 2003’s 74.5p low but down from a high of 166.5p last March, on a current price earnings ratio of 11.9, leaving scope for significant improvement as a speculative buy.

Havelock Europa	LSE	�14.06m	36.50p	0.50p
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Other company articles:
Havelock on expansion trail			03/04/2007
Havelock Europa buys furniture group			06/02/2007
A good schooling for Havelock Europa			06/10/2006
Eurosceptic grows Europa			10/04/2006
Havelock Europa			10/10/2005