Hungry Redhall on trail of takeover targets

The Wakefield-based group, which lost out in the bid for Mount Engineering in October, is focusing its sights on high margin takeover targets that will complement its existing operations.

Chairman David Jackson said that with 9m cash in hand and 25m of banking facilities, the group can bankroll an acquisition of up to 20m. A bigger deal would be funded by raising money from investors.

"We've got supportive shareholders and banks," said Mr Jackson.

Chief executive Simon Foster said the group is looking at opportunities in both the energy and defence markets and is looking at companies in the UK and abroad, with Poland a possible target.

"We are also looking at a range of manufacturing businesses as long as they are niche," said Mr Foster.

Mr Jackson said the target acquisition will have more white collar workers than blue collar. Redhall is keen to get its operating margins up from the current 5.1 per cent to between seven and eight per cent.

"Investors treat companies with a seven to eight per cent margin a lot more differently," he said.

He added that the goal is to create a company with a market capitalisation of over 50m. The group currently has a market cap of 40m.

"We need to be bigger from a shareholder perspective, we need to be over 50m."

He was speaking yesterday as Redhall reported a 12 per cent increase in revenues to 145m for the year to September 30.

Underlying pre-tax profits increased by nine per cent to 7m and the group's shares closed up 1.87 per cent last night, a rise of 2.5p to 136.5p.

Mr Jackson described it as a strong performance given the competitiveness of the market.

The energy division traded "satisfactorily" with increased operating profits, but the group said the defence business traded "exceptionally well" with operating profits almost double last year's figures.

The process division traded below expectations and Redhall has restructured the business in anticipation of a pick up in demand from multi-national blue chip clients once market conditions become more favourable.

Mr Jackson said: "A pleasing performance in difficult market conditions reinforces our belief that we are delivering on our sound strategy.

"We are confident that we have positioned the business in key sectors in growth markets and in particular we are looking forward to the start of the Nuclear New Build programme where we have a lot to offer."

The group was relieved by the outcome of the Government's Comprehensive Spending Review, which has preserved the Nuclear Decommissioning Authority budgets for long-term decommissioning.

In addition, full commitment was given to the Astute Class submarine programme and the Atomic Weapons Establishment's budgets for the current nuclear programme were confirmed.

"The run-up to the Spending Review was a difficult period," said Mr Foster. "But there is no area where we've been impacted. We've seen short term delays caused by the uncertainty, but long term it is all looking good."

Analyst Richard Bennett at Altium Securities said: "Results are ahead of consensus. However, the real development in the Redhall story is in the bulging bid pipeline and the huge nuclear new build potential taking an important step forward."

The group said this was the fifth successive year of growth for the company and the group has won a number of new contracts with Sellafield, Magnox, Vivergo and Teesside, Dungeness and Torness power stations.

The dividend was raised by nine per cent to a full year dividend of 4.8p per share, reflecting the board's confidence in the group's future prospects.

"Shareholders like a progressive dividend policy," said Mr Jackson.

The group said that while it is difficult to predict the level of organic growth that the business can achieve in the short term, the medium and long term prospects remain "extremely good".

"We are confident we have positioned the business in growth sectors in growth markets," said Mr Jackson.

Redhall has an integrated offering of design, manufacture, installation, maintenance and decommissioning and counts many blue chip companies among its customers.

LOSING OUT IN BATTLE FOR MOUNT

US manufacturing giant Cooper Industries won the battle for Mount Engineering in October after Redhall bowed to its superior financial firepower.

Redhall said it would not increase its bid for Mount, which ended an 18-day tussle with Cooper.

York-based Mount's board switched its recommendation to favour Cooper's 19.2m bid, saying it gave shareholders the best "commercial" value.

Mount said Cooper's financial support will help it grow, as will the company's global network of contacts in engineering, procurement and construction.

Mount, a small engineering firm that makes threaded adaptors for the oil and gas industries, has a nominal head office in York, but the majority of its 80 employees work in the Midlands and Suffolk.

Redhall made a 16.5m offer for Mount on September 22 at 70p per share. Rival interest from Cooper emerged days later.