Delta has nothing to do with the similarly named US airline: it’s an old-fashioned, UK-based metal-basher that sells most of its goods to the resilient Asian (78%) economies, with the rest shipped to North America (13%) and Europe (9%). Its largest division (representing 58% of sales) makes engineered steel products – everything from motorway crash barriers and electricity pylons to steel lamp posts and telecommunication poles. The other two smaller units provide hot-dip galvanising services (28%) and produce electrolytic manganese dioxide (14%), a key ingredient in disposable batteries.
Delta plc (LSE:DLTA)
These markets are cyclical and in an October trading update the board said it “remains cautious” about 2009, until the global outlook improves. Yet “current performance is holding up well, with year-to-date trading and full-year prospects… on track”. All three subsidiaries are “performing strongly, backed by strong demand.” The management team also deserve credit for being canny investors. At the end of last year (as a result of its past heritage), the group had a hefty £640m pension fund, compared to its market capitalisation of just £123m. But a deal in June to transfer £400m of assets to buyout specialist Pension Insurance Corporation has left Delta with a fully funded £215m scheme. And in May the trustees cut the plan’s exposure to equities, protecting the assets during the current turmoil.
After all these changes, what’s the business worth? First, it had net cash of £98.8m as at the end of September. The City expects 2008 turnover and underlying earnings per share of £315m and 14.6p respectively. I would rate the stock on a modest six times through-cycle operating profit multiple (assuming a 5% margin) – giving a total enterprise value of about £190m (or around 125p per share). Delta also pays a 6.9% dividend yield, possesses net tangible assets worth 132p a share and appears to have sufficient funds to weather even the toughest economic storms. With demand holding-up and the balance sheet secure, the shares look good value. At these levels, Delta could even become a takeover target.
Recommendation: speculative BUY at 76p
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments.