The Investment Column : Morgan still raising profits

Morgan Crucible's decision to concentrate its resources on building strong positions in technologies serving a wide range of industries continues to pay dividends. Despite varying fortunes among its customers, the carbon brushes to metallurgical ceramics group still managed to raise profits another 17 per cent to pounds 85m in the year to 4 January.

Stripping out the Holt Lloyd car polishes business, sold for pounds 57.5m in 1994, underlying fully-diluted earnings rose a chunky 22 per cent to 25.4p. A final dividend of 7.55p takes the annual total up from 13.1p to 13.8p, somewhat behind the rise in earnings as Morgan prudently increased the cover to two times.

With no more than 8 per cent of sales going to any particular industrial sector, the group was able to shrug off the weakening of the automotive and US defence industries as the year wore on. The slack was taken up by areas like chemicals, electronics and telecommunications. Morgan's diversification has allowed it to weather the loss of US defence sales in its Wesgo ceramics business and further restructuring in the electronic defence operations, now 70 per cent defence-related, should reap similar rewards. In the short term, however, pounds 1.6m of restructuring costs and pounds 800,000 spent on a new laser cut operating profits from the speciality materials from pounds 17m to pounds 16m last year.

Acquisitions, which chipped in pounds 5m, and restructuring helped Morgan's other three division record healthy rises in profits and margins. At 12 per cent, up from 10.5 per cent the year before, the group is close to its target of 15 per cent. Carbon, on 14.6 per cent in 1995, will be there this year, but at between 10 and 12 per cent, the rest of the group has a bit to go yet.

Last year's margins rode higher on the back of strong volume growth and price rises of up to 5 per cent, but Morgan's main markets may have peaked, at least for the time being. Even if orders are currently 6 per cent ahead, there are signs of weakness in some of the main developed economies.

Morgan is expected to turn in pounds 98m this year, which would put the shares, down 13p at 412p, on a forward p/e of 14 or 15. Fair value.