Molins packs a mighty punch

Investment Column

Molins, the cigarette making to packaging machinery group, has been a sterling performer over the past few years: profits and share price have more than doubled since 1991. However, the shares have eased since reaching an all-time high of pounds 10.37 in April and a cautious statement with the half-time figures sent them down another 10p to 896.5p yesterday.

But the growth story remains intact. Pre-tax profits stormed up another 20 per cent to pounds 13.6m in the six months to June, on a similar rise in sales. In the core tobacco machinery business, profits 27 per cent ahead at pounds 11.6m, owed much to Molins' early move to establish itself in the huge Chinese market in the 1980s. Its plant in Buckinghamshire has been running flat out to fill orders from the country won last year. Those have dropped back to more normal levels as competitors have caught up with Molins, but order books remain full well into next year.

The other area of caution is in the much smaller corrugated packing machinery operation, which has also been riding on the back of strong demand. Order intake is slowing as this notoriously cyclical industry starts to turn down. Molins is taking action to secure the future of the business by combining its two US factories and expects the pounds 2m cost taken in these figures to be paid back within 12 months.

While the group boasts strong market positions in cigarettes and boxes, its biggest hope for future growth lies in the fledgling packaging machinery division. Profits there cut from pounds 1.8m to pounds 800,000 in the half-year reflected hefty spending on developing new products. The promise of this business is that it can piggyback on the existing manufacturing, sales and marketing infrastructure for the tobacco machinery operation.

The shares may mark time, but, based on full-year profits of pounds 34m, they remain a firm hold.