6 MAY 1972, Page 30


Putting money on J F H

John Bull

ENGINEERING is the next major growth sector. As a short-term speculator it would be foolish to concentrate too much on the rationale behind this view taken by the market. What, however, is of prime importance for the gambler dealing in the account is to try to determine the factors that could suddenly cause the market to have reservations. And as neither the rail and dock disputes nor the poor results from several engineering companies have resulted in any more than a temporary ripple, I remain sanguine; enough so, at least, to put my money on John Folkes Hefo. I am confident that the figures for 1971 will meet a good reception when they are announced around May 8.

Currently the Ordinary shares standing at 35p are selling at 19i times last year's earnings of 35.8 per cent. Now after a 33 per cent improvement in interim pre-tax profits I am going for a more moderate increase of about 15 per cent in the latest period. On this basis earnings rise to 42 per cent and the multiple falls to 16.5. Even against the FT engineering (general) index multiple of over 17 JFH's rating looks ungenerous but then one must not forget that a part of the group's business is in such glamour areas as building.

In fact JFH has a three-way structure comprising of building and merchanting as well as engineering. This does not belittle the latter sector which accounts for over two-thirds of profits. It does, however, mean that all the group's eggs are not confined to one basket.

As far as building is concerned there are three divisions, involving private house construction, contracting for the Post Office and industrial and private decorating. These activities made £0.17 million in 1970, when the market was particularly depressed, and in 1971 profits should be at least in the region of £0.20 million. Mean while the building supplies side, one of the engineering units, is concerned with supplying kitchen cabinets and fitted bedroom furniture, and trading conditions should have been favourable for both.

As for the engineering division while the industry is fighting to stay on its feet I have reason to think, that JFH will have weathered the poor trading climate better than most. Only in October last year it was reported that order books were healthy and would provide enough business for some time ahead.

Engineering activities include steel stockholding, drop and hammer forging and the manufacture of nuts, bolts and springs. To some extent the upturn in the motor industry must have been helpful, though the policy of major destocking by vehicle manufacturers should mean that more benefits will filter through in the current (1972) period and there are signs that the commercial vehicle sector will definitely do better now. Also I expect one subsidiary (topographically enough called Black Country Engineering) to make more ground, especially after recent reorganisation.

Lastly, there is JFH's industrial property division. There are two industrial properties very well situated by the side of the M5 •and M6 and the total area of group companies is around a million square feet while the remaining 400,000 sq ft are owned by John Folkes Developments and leased outside the group. Approximately half of this latter area has been so far developed. In conclusion I see JFH as a group that will outpace others in the engineering sector and should give scope for faster growth in 1972. These encouraging prognostications for the immediate future should certainly whet the market's appetite in its current buoyant mood.