The Investment Column: 600 Group fashions a brighter future

Since 1990 the 600 Group, Britain's leading independent maker of machine tools, has been dragged into the 20th century with a range of new products and a savage cost cutting programme. The results were spectacular until a profits warning in January knocked the remaining stuffing out of a share price which was anyway in decline from the 300p peak it reached a year ago.

Yesterday's 1p dip in the shares to 126.5p came as the group unveiled pre-tax profits more than doubled from pounds 13.4m to pounds 30.8m in the year to March. The figures are complicated by a goodwill write-off on this year's sale of Ealing Ectro-Optics and pension credits, including last year's pounds 15m one-off repayment. Even so, the underlying 12 per cent profits rise to pounds 11.1m was in line with the market's reduced expectations and the future is looking brighter.

The de-stocking which started to hit the group from the middle of last year has now worked its way through the distribution system. The company believes the recent strength of the US market will continue for another two years, while although both the UK and Germany will be flat in 1997, new products will help to increase 600's 4 per cent share of the European machine tools market.

Certainly the small and medium-sized businesses which make up the majority of the group's customers should do well out of the aerospace industry in the years ahead. Paradoxically, the absence this time of last year's pounds 6m order for British Aerospace should improve margins, given the high outsourced element involved. A bigger question mark hangs over automotive suppliers, however, while more European economic turmoil in the run up to monetary union does not bode well for engineering markets there.

With around pounds 1.6m net cash since the sale of Ealing, the group is now looking for acquisitions. Meanwhile, profits of pounds 12m this year would put the shares on a forward multiple of 7. Reasonable value.