The rise and rise of Vega Technology

By THIS IS MONEY
Updated: 05:34 EST, 15 December 2005

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TECHNOLOGY consultant Vega, recently recommended by Growth Company Investor at 186.5p, has romped home with strong half-time figures to the end of October, scoring bumper sales growth in each region and market sector.

Now firmly focused on the aerospace, defence and government markets, Vega reported a 20% jump in profits to £2m, on sales that were up 25% at £30.6m. Organic growth ­ stripping out its Anite acquisition ­ was a very healthy 20%, and operating margins held firm at 7%, despite Vega investing £200,000 to expand in key locations including the UK, Germany, Holland and France.

Savvy chief executive Phil Cartmell flagged up appetising growth in the aerospace market, where Vega supports satellite programmes and develops training systems for large aerospace manufacturers.

It also has a foot in as the defence consulting business, working for the UK intelligence community, contracted through the Ministry of Defence. Vega is looking to make astute acquisitions to boost the consulting business and to broaden geographically.

Cartmell says Vega kickstarted the second half with strong orders and is confident of hitting full-year forecasts. Before recent contract wins, Cityn umber crunchers were going for profits of £4.6m and earnings of 15.2p, placing the 202p shares on a forward multiple of 13.3 times. With Cartmell at the helm, Vega has star-studded appeal.

Verdict: A strong buy

• MARKET DATA: Vega shares

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Hardide heralds major breakthroughs

Hardide is the surface engineering technology provider that floated on Aim with a £1.4m funding earlier this year.

Its unique tungsten carbide technology is far more resistant to corrosion than traditional methods, improving the life of components and optimising performance across a rang eof industries, including oil and gas, valves, pumps, and aerospace.

Hardide has already bagged approved supplier status with BAE Systems, completed first orders to coat components for the Typhoon Eurofighter, and is in talks with leading aircraft manufacturers, including a mystery blue-chip aerospace and engineering giant.

Yesterday's maiden pro-forma figures to September ­ covering 12 months of trading for subsidiary Hardide Coatings ­ revealed a three-fold leap in revenues to £1.1m and pared losses of £701,000.

It happened as they won more business with existing customers in the UK and Europe, and new clients were brought on board. Hardide also expanded into the US. Sales more than trebled in the oil and gas and valve and pump sectors and revenues at least doubled in the US, where Hardide's Texas team is tapping into the oil and gas arena.

For the current year, Seymour Pierce analyst Alan Matthews envisages a move to pre-tax profits of £500,000 off a top-line £2.9m, giving 0.4p earned for every share and a racy forward rating of 34 times.

Nevertheless, the shares ­ priced at 13.5p ­ could repay a speculative punt, since Jim Murray-Smith, chief executive, insists Hardide sits 'poised on the edge of major breakthroughs in two immense global markets, oil and gas and aerospace'.

Verdict: A speculative buy

• MARKET DATA: Hardide shares

Raw material woes hit Renold

On the main board, Renold, the supplier of industrial chains, power transmission products, and automotive cam drive systems, continues to suffer from severe raw material and energy cost pressure.

This week's interims to September revealed a 12% rise in turnover to £107m. The top-line figure included £3.4m of sales from March acquisition Sachs Automotive France (SAF) meaning like-for-like growth was a modest 7%. At the pre-tax line, last time's profits of £2.1m became losses of £2m.

Performance at Renold's industrial power transmission division was held back by crippling steel price hikes, as well as burgeoning freight and energy costs, and hard won price increases are taking time to flow through to the results.

Encouragingly, North American orders for chain products were strong, as were European orders. Actions on costs are underway ­ a factory has been established in Poland, manufacturing from China is being mooted and increased component outsourcing should help.

Elsewhere, sales in automotive systems were 40% higher, boosted by the SAF acquisition, as well as a new programme at Peugeot and growth in demand from other manufacturers.

And though machine tool orders were weak, dragging first half machine tool and rotor sales 19% lower, orders have recovered strongly, boding well for the second half.

Though Renold teased the City with news, its order book is substantially higher than at the beginning of the year. Any further input hikes will impact badly on its results.

A final dividend is unlikely, given that last year's was skipped to conserve cash for restructuring, and no interim payout was declared. With uncertainty reigning, the shares are probably best avoided for now.

Verdict: Give them a miss – for now.

• MARKET DATA: Renold shares

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