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26/02/2007
An improved second half and a rise in the 2006 dividend to 3.6p (3.5p) should fortify investor confidence in the growth story at Stadium Group, the contract manufacturing services counter guided by Nigel Rogers.
Last year was a tough one for Stadium, which produces electronic products and assemblies for original equipment manufacturers from facilities in China and the UK. Temporary volume softening, spiralling input costs and the weak US dollar (constraining reported sales growth to �38.6m) pegged pre-tax profits back from �2.6m to �2.2m following four years of profits growth.
However, significant margin improvement was seen in the second half as material costs stabilised, albeit at high levels. ‘Our cost base stabilised and our market was more receptive to price increases than we’d expected,’ explained chief executive Rogers.
Stadium Asia’s move towards more complex, high-specification production continues apace and exciting new work has been won in the consumer and automotive sectors. ‘We’ve jointly won new business with Trico into Ford,’ Rogers enthused, ‘and we’ve just started production with a major UK consumer products company that should become one of our major customers by the end of 2007.’ Over at Stadium Power, the recent acquisition of power supplies distributor KRP has proved a success and Rogers is looking for further deals in the power supply market.
This year, a return to pre-tax profits growth is forecast, with a �2.6m return predicted from �42.1m sales. For 2008, profits are forecasts to grow to �2.7m, with earnings burgeoning to 7.3p and annual payouts from 3.8p to 3.9p. These numbers place Stadium on a lowly forward multiple of 9 times this year, falling to 8.8 next, with prospective yields of around 6% for both. With margins in recovery mode and Rogers seeing plenty of new business opportunities for the Chinese operation, we think the shares are good value. Buy/Add.
James Crux
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