MIDAS REPORT: TT's five-year plan is set to deliver results

By Joanne Hart for The Mail on Sunday
Updated: 16:10 EST, 14 November 2009

 

TT ELECTRONICS delivered profits of £33.3 million in 2007. The following year they fell to £21.1 million and this year the company is expected to make just a few hundred thousand pounds.

It has been a rough recession for the global electronics business, which makes products for customers including the NHS, the Ministry of Defence and BMW.

Until recently half its customers were car makers and as demand for new vehicles slumped, so did TT's orders.

But even though this year's figures are likely to be poor, the company is well worth a closer look.

In the summer of 2008 TT appointed a new chief executive, Geraint Anderson, and a new finance director, Shatish Dasani. Weeks later, economies around the world went into meltdown.

Against this backdrop, Anderson and Dasani came up with a three-tofive-year plan to take the company from an over-reliance on car makers and low-margin work to a focus on more stable industries, such as defence and healthcare.

Anderson was also keen to expand into more profitable business areas such as secure power --uninterruptible power supplies for organisations that cannot afford to have the lights go out.

The plan is making progress. More than 20 per cent of the workforce has been cut - 1,600 people - and more jobs are going.

This is never easy but the economic climate has made employees more understanding. Against that, TT is keen to promote good relations with its remaining staff so it has been investing heavily in training and technology.

Many of the redundancies arose because different parts of the business were doing the same thing for different products. Anderson aims to streamline the company so there is no duplication of effort or cost.

In many ways, TT Electronics is a business that Britain should be proud of.

With its headquarters in Weybridge, Surrey, it operates all over the world and most of the products it makes are extremely complex, such as sensors that allow car engines to turn off automatically at traffic lights and start up again when the accelerator is pressed.

The group also makes parts for hospital equipment, such as brain scanners, components for fighter planes and kinetic energy recovery systems for Formula 1 cars - essentially systems that harness energy and release it all in one go.

•• Midas verdict: TT shares were more than 240p in January 2007. Today they are 81p. At this level they offer a real opportunity.

The company will benefit, like many others, as economic conditions recover, but its own internal improvement programme should deliver additional gains.

Profits of £6.9 million are forecast for 2010 and further growth is anticipated in 2011. Supporters believe this stock should double by the end of next year. Buy.

Kewill defies sinking shipping market

Kewill Systems helps companies to transport goods around the world in the most efficient way - not by providing them with ships and lorries but by selling them computer software.

Moving goods is a complicated business, particularly when it involves crossing borders or oceans. Kewill's technology works out the best routes to take, the best shippers to use and the necessary customs documentation for each country.

Transport businesses have had a terrible year and shipping trade has collapsed, but Kewill has continued to grow, partly because it is good at what it does and partly because using its services helps clients save a lot of money.

Last week chief executive Paul Nichols delivered operating profits up 25 per cent to £3.5 million for the six months to September 30. The half-year dividend was increased 17 per cent to 0.35p.

Brokers predict full-year profits to March 2010 will rise 17 per cent to £8.2 million while the dividend is forecast at 1.15p, against 1p this year.

Kewill has three divisions - logistics, compliance and reverse logistics.

The first provides the software for efficient transportation. Sometimes this involves selling customers a one-off package - increasingly, Kewill operates the software itself and customers pay for it annually.

This is the sort of business that Kewill prefers because it is recurring and enables it to predict revenues.

Compliance involves finding out what customs regulations apply in each country and making sure businesses conform to them.

This also tends to be sold annually as laws change so fast that customers prefer to let Kewill handle it on their behalf.

The third area involves goods being returned, an increasing phenomenon as people buy more and more over the internet.

More than a quarter of all goods bought online are returned and Kewill helps companies offer this service to their customers in the most cost-effective way.

•• Midas verdict: Midas recommended Kewill in January 2008, when the shares were 79p. Today, they are 99p.

The 25 per cent increase is impressive, particularly given the industry in which Kewill operates, and the outlook is promising. Along with last week's interims, Kewill announced it was raising £7.5 million to fund acquisitions.

The company does not plan any large-scale bids, but it is keen to expand the reverse logistics arm.

Many brokers reckon Kewill is a classic bid target itself. Hold on to the shares and find out if they are right.