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Low & Bonar (LWB) – Finals PTP: £22.4m (£14.7m) Divi: 3.1p (2.80p)

The flooring specialist enjoyed a strong year of both organic and acquisitive growth, showing that trading in the building materials sector is not that subdued for those companies that aren’t over-exposed to the residential or end-user market. Low & Bonar’s exposure to that area is minimal. Two more acquisitions made after the year end and the 11% increase in the dividend to 4.85p are also reassuring signs.

Both Low & Bonar’s divisions, technical textiles and floors, registered buoyant sales, and group pre-tax profit for the year was £22.4 million, around 52% higher than a year ago. The technical textiles division benefited from two acquisitions that were integrated last year, Colbond and Geotipptex, and posted a 97% increase in profits while taking a £2.5 million hit from raw material prices increases.

The floor division didn’t grow quite as much but was helped by improved margins, good sales of new products and international expansion. The mix, according to analyst Phil Lindsay at ABN Amro, is 20% of sales in the UK, 60% in Europe, and 20% in the US and Far East. US exposure is to the public sector, which is holding up well against a grim-looking residential sector.

Low & Bonar’s key strength now is its diversified business, which can see off raw material price increases. Market share has been growing, with blue-chip contracts adding to the book, and the regulatory environment also plays in the firm’s favour.

ABN Amro’s pre-tax profit forecast for 2008 is £29.2 million, implying 31% profit growth. On the bank’s 2008 PE of 7, with a 5.8% forecast yield, the shares look good value.

Shares says: The shares plunged last year and regained almost 20% in the past week, but there’s still way to go.

by: Carlo Svaluto