Although not fashionable, the global market for fasteners – nuts and bolts and adjustable ties – is huge. It is thought to be worth around £23bn and growing in volume terms at 10% a year. This is no surprise as almost all manufactured goods – from cars and domestic appliances to electronic and telecoms devices – need to be held firmly together. Fasteners are low cost relative to the final product, but are always essential.
Trifast (TRI), tipped as a BUY by Brewin Dolphin
While the vast majority of the market comprises commodity-type products, there is a growing need for product-specific items backed up by a high level of technical and logistical support. Trifast is one of the UK’s largest distributors of industrial fasteners and associated parts, supplying over 150 million a day to customers around the world. It is increasingly moving away from the lower-value end and focusing on specialised applications for flat-screen computers and televisions.
Trifast differentiates itself from its competitors by offering impeccable service. Its manufacturing operations are particularly suited to producing high-volume parts in a variety of metals and plastic that are designed to meet complex customer drawings. The group’s laboratories also offer expertise to ensure that fasteners are designed with the appropriate levels of strength and durability. Trifast provides vendor-managed inventory systems, supplying parts directly to a customer’s production line in light of their manufacturing schedules, which cuts costs.
Chief executive Steve Auld is aiming to expand Trifast over the next three years. Last year saw a 12% rise in turnover to £132m, delivering a commendable 53% jump in adjusted earnings per share from 4.8p to 7.3p. The combination of organic growth and bolt-on acquisitions should create a turnover of £250m by 2010. At the same time, Auld aims to ensure that profits grow substantially. One of the ways that Auld intends to do this is by expanding the company’s factory capacity. Trifast makes around 16% of everything it sells (primarily in Asia) and wants to expand this figure to 25%, improving its profit margins. The only major problems are the cut-throat nature of the industry, rising raw material costs and last year’s disappointing performance in the United States. However, the board reported in June that “the new financial year started positively” and that it is confident about the group’s prospects. This year, sales and underlying earnings per share are expected to come in at £143m and 7.8p respectively, putting the stock on a cheap p/e ratio of 11. Net debt of £12.7m is manageable because interest payments are covered by a healthy ten times.
Recommendation: BUY at 84p
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments