Bottom Line: AE ready for take-off

THE impressive 71 per cent increase in pre-tax profits reported yesterday at Aerospace Engineering, the components manufacturer based in Swindon, is unduly flattering. The company makes components for aerospace manufacturers and electronic circuit boards, widely used in communications equipment.

Taxable profits rose to pounds 367,000 from pounds 214,000 in the year to 30 April, largely because interest charges fell following a disposal late last year. Operating profits slipped back below pounds 800,000.

The dividend is held at 0.75p but is uncovered by earnings for the third year running.

The company plans to reduce debt by selling property. Gearing is uncomfortably high at 45 per cent, but sales of excess property could clear debt altogether.

To invest in AE you require faith that activity among aircraft manufacturers will pick up. That may be a little while, but in the meantime, the company should be able to make a decent living out of circuit boards. Without debt, it might even be able to increase the dividend.

Shares rose 1p to 18p yesterday. If AE makes pounds 600,000 before property in the current year the shares trade on a forward p/e of 18. The yield is 5.2 per cent.

With a little help from its marketplace, however, AE's profits could rise strongly. Buy for recovery.

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