Alumasc - a rare value play

Business hasn't been easy for Alumasc, but the firm has still made its biggest profit in five years, driven largely by demand for building products from housebuilders and for refurbishment projects.

Losses at the engineering products division have narrowed, too, yet despite rallying hard on these results, the shares still look incredibly cheap.

A 3% drop in revenue to £113.4 million for the year to June was mostly down to the winding down of a lucrative contract supplying the aluminium smelter at Kitimat in Canada. Sales of insulated render systems, boosted by government initiatives in 2013, were not repeated this year, either. Strip out these projects, however, and building products revenue actually rose 2% and engineering was up 5% to £31 million.

Underlying pre-tax profit, which excludes restructuring and acquisitions costs and a £600,000 write-down in 2013, still grew by 7% to £6.3 million despite the weaker top line, as underlying operating margin improved to 6%. Building products made £8.3 million, down a touch on last year as Alumasc's core markets stabilised still 30% below the pre-recession level of 2008. But rainwater and drainage did well, while the roofing business is back in profit and momentum is building elsewhere.

At the smaller engineering unit, losses halved to less than £200,000 and the division is now breaking even at the cash profits level. Decent money will take longer to generate, but the Dyson Diecastings operation made over £1 million last year and continues to shine.

And the order book is rising again, too, from £35 million in December to £36.8 million, and it's improved again over the past few months. Management expects more gains going forward, in line with external industry forecasts for UK construction activity for further recovery and growth.

Alumasc shares have met technical resistance at 124p - the current share price - and the shares do look temporarily overbought, according to the relative strength index. However, broker finnCap predicts adjusted earnings per share growth of almost 8% in the current financial year to 14.2p, and 18% to 16.7p in 2016.

That puts Alumasc on a forward price/earnings ratio of less than 9, dropping to just 7.4 the year after. Even a forward multiple of 12 - still a discount to peers on over 14 times - implies a price target in excess of 170p. There's a prospective yield of 4.4%, too.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.