11 Apr 07. Aluminum giant Alcoa Inc. reported strong first-quarter results, as sales gains in global building, construction and aerospace markets more than offset declines in the commercial-transportation market and the U.S. housing sector. The report by Alcoa, which kicked off the first-quarter earnings season, signaled healthy returns among large blue-chip companies in the quarter. It also pointed to continued strength in global commodities markets, driven by China and other emerging markets even as climate-change legislation could affect industrial companies and as certain metal-using customers such as North American auto makers experience declines. Rising aluminum prices and strong global demand helped Alcoa’s profits, countering slackening demand in U.S. auto and housing industries. The Trend: The report signaled healthy returns among blue-chip companies and continued strength in global commodities markets, driven by China and other emerging markets. Climate-change legislation could affect industrial companies, but aluminum could be in demand if vehicles require lighter applications. The Pittsburgh-based company, which has executive offices in New York, noted that higher alumina and aluminum prices also helped the company to an 8.9% increase in net income. (Source: WSJ)
04 Apr 07. Chemring snaps up Simmel. Chemring is paying about 13 times net profits for an Italian firm that chiefly supplies so-called energetics (ie, fuses, arming systems and the like). The company, Simmel Difesa, generated a profit margin of 20 per cent in 2006 on £29m-worth of sales. That’s even higher than Chemring’s own margins, so the purchase price looks reasonable. And as Chemring’s shares – currently £19 – trade on about 27 times its most recently-announced earnings, the effect of the deal will be automatically to add to Chemring’s earnings. Acquiring Simmel, which also makes ammunition and illumination mortar, gives Chemring access to new markets, such as Italy and India. However, it does nothing to address our key concern about the group’s prospects – the downturn in business that is likely to follow the eventual phasing out of a big US presence in Iraq. Granted, that’s not imminent, but it is likely and it’s hard to square with the fact that Chemring’s shares trade on about 20 times forecast earnings. True, we were way off the mark when we suggested selling the shares at £15.07 (8 December 2006). Even so, we still think shareholders should take profits. Sell. (Source: Investors Chronicle)
5 Apr 07. CROMA (CMG). Croma’s share price has been sliding ever since it moved on to the Alternative Investment Market (Aim) from Ofex in late 2002. But the underperformance may be over thanks to two acquisitions which have propelled Croma’s 2006-07 half-year turnover. In February last year, the company acquired Vigilant (Scotland) for £804,000 in shares and with it a team of ex-military personnel (notably from the Black Watch and Parachute regiments) to guard
high-level security establishments. A few days later, it paid an initial £1.29m in cash and shares for Photobase, which designs and installs biometric identification and access-control systems. And in the latest half-year, the biometrics business installed a number of access systems in UK prisons and has a trial contract with an NHS Trust. This had led to a sharp rise in interim sales (which continued on from the previous six months) thanks to a jump in turnover at Vigilant, but at lower margins, which pushed up the loss. The latest results also take in a goodwill amortisation charge of £265,000 (up from £101,000). The group had to pay for a group managing director and marketing consultants, too. For the current half-year, though, Croma predicts a recovery in margins and brokers still expect 12-month sales of around £6m (£2.82m in 2006) and break-even (a £1.14m loss). What’s more, Croma now has institutions interested, with the likes of Artemis and Axa Framlington controlling half the equity. O