Underwear underpins comeback

If the mark of a great entrepreneur is that he or she just keeps coming, then Stanley Wootliffe, now grey-haired and in his mid-50s, has to be a contender. Behind him stretches a trail of broken dreams going back to the 1970s with some vehicles, like Pawson, sparkling briefly before ending in bankruptcy. But this time it could be different - Stanley really does seem to be older, wiser and more patient; though a flash of the old bravado does appear when a slightly manic gleam comes into his eyes and he talks of building a pounds 100m turnover business by the end of the century.

The new vehicle, yet another former "shell" (effectively dormant) company, is Caldwell Investments, capitalised at pounds 4.55m at 48p per share. Via various trusts Stanley Wootliffe owns around a third of the company. He took executive control in 1986 and has been gradually building up the business since then. He has done an impressive job. The company he started with was capitalised at some pounds 200,000 and had the usual problems and liabilities typically associated with "shells". In the 14 months to a changed year end of 31 December 1995, however, Caldwell had turnover of pounds 10.1m, pre- tax profits of pounds 405,000 and shareholders' funds of some pounds 2.7m. In the process it has graduated from the OTC market to a full listing in March 1995.

Surprisingly for such a small company the main business activities, which all came in by acquisition, are in Germany, via a subsidiary Nissel Textilien. Principally it imports simple white underwear for men. Caldwell sources its product in vast quantities from factories in Romania and Egypt contributing to the phenomenon of Germans earning twice as much as we do for the same job, but paying less for their underwear, according to Stanley Wootliffe.

For most of the last 10 years Caldwell has been quietly building the business. The plan now is to adopt a higher profile with the appointment of a City public relations firm and the search for a stockbroker. Part of the story which the group has to tell is that it has just made an acquisition, on apparently very attractive terms. The business, Lawtex Nursery Products, promises to transform Caldwell's hitherto tiny UK operations. The firm is being acquired for pounds 100,000 in cash plus pounds 450,000 of debt repayable over the next three years. It supplies a range of products including childrenswear, nursery products, parasols and a proprietary product, the "Lawtex clamp" which attaches umbrellas to prams and sells in substantial numbers (pounds lm plus a year) through Mothercare. Lawtex sales have grown from pounds lm to pounds 4m over the last four years with profits running at some seven per cent of sales.

The addition of Lawtex and another cheaply bought business, Roumi Textilhandels - which should add pounds 1m of sales to its German operations - puts Caldwell on course for 1996 sales of pounds 15m and pre-tax profits of pounds 750,000. On a lowish tax charge, earnings per share should reach 5.35p with a 1.5p dividend against comparable figures of 3.02p and 1.11p for 1996. At 48p that puts the shares on a prospective p/e ratio of just nine times and a yield of 4.2 per cent. Net assets are 28.lp a share.

Wootliffe felt the shares were so cheap that, prior to the latest acquisitions, Caldwell bought back 270,000 shares in the market at between 30p and 31p. He says he took the decision when, after looking at possible acquisitions, he decided that the best value around was offered by his own company.

He cites various factors which he hopes will further enhance sales and profits in the future. The performance to date has been achieved against the background of subdued consumer demand in Germany. In partnership with an Indian entrepreneur the group has set up a dedicated factory, in Egypt, to manufacture underwear. As this factory comes on stream profitability should be enhanced and the factory has the capacity to churn out vast quantities of other low cost items. A parallel men's underwear importing operation is slowly being built up in the UK and the group is looking to use its importing skills in other areas.

Last but not least is the scope for acquisitions. Wootliffe points out that importing is a more capital intensive business than people realise. because of the need to finance imports. Third world manufacturers are typically strapped for cash and unable to find the bank finance to process large orders without the confidence of a sale to a well-financed importer. Importers unable to provide this comfort are finding life difficult; hence there are many businesses up for sale. Caldwell is looking at deals which could take the group to pounds l00m sales with surprising speed. Investors who buy now, in what is likely to prove a tight market, are buying a cheap share ahead of what could be an exciting, if possibly bumpy, ride.