Acquisition news, forecasts & tips.

Elektron results are due out late May 2007.

With a new acquisition lately of Howle Holdings investors will be looking for news on how the new operations are faring. In particular investors will be looking at growth prospects for Howle Carbides and Titman Tip tools. Both these operations had small exports prior to the Elektron acquisition and its hoped EKT can drive the sales forward with its large distribution network in over 50 countries.

Its expected the company will increase the final dividend. Most the distributors are bullish on prospects and shareholders are looking for another excellent year of growth.

2007/8 profits should jump sharply due to cost cuts of transfering manufacturing from the Bulgin factory at Barking to Tunisia. The Bulgin factory has now been vacated.

There are no broker forecasts for Elektron however its expected underlying profits for 2006/7 will be circa £2 million excluding exceptionals. For 2007/8 pre tax profits are expected to jump more than 50%.

Share tip... 2006 now dated due to recent acquisitions.

The Japanese, you will recall, were very good at borrowing the inventions of others and manufacturing quality products in very high volumes. And down in the unglamorous setting of East Molesey, I discovered a great little British company that is doing very much the same thing.How do the following innovations sound to you? An iron that turns itself off if it has not been moved from the horizontal position for 20 seconds. A washing machine that recognises the contents of the wash and automatically sets the correct programme. A cooker hood that switches itself on when it smells fumes...These are just some of the products that are coming our way. And they are made possible by the prevalence and affordability of the type of electronic and electromechanical components that I watched being churned out in huge numbers at the south west London factory of Arcoelectric. Unknown in the Square Mile... just the way I like itAlong with Bulgin Components, another business that can trace its history back to the 1930s, Arcoelectric is now owned by Elektron, and run by its executive chairman, Adrian Girling. Girling, 54, could, I am sure, be in charge of a much larger company. He is an Oxford graduate, a Chartered Engineer and a Fellow of the Institute of Electrical Engineers. He is also a highly experienced businessman, having worked all over the world for the likes of ITT, Marconi and Spirent. He is an enthusiast for the manufacturing industry - but is frustrated, too. "Last year was hard work," he reported in May's results statement, "but great fun." But he complained: "There are companies who do not have the channels to market enjoyed by Bulgin and Arcoelectric, who lose money, yet are valued at multiples of sales because they claim to have a unique technological business proposition." That is not a sentence that would win prizes in a literary competition, but it does reveal one thing. Elektron does not employ a PR advisor to smarten up the prose. Which is one reason why it is virtually unknown in the City. But the City's loss is our gain. Because this is a great story that I will take up at the start of 2003, when Girling's reputation as a fixer of problem businesses saw him dropped into a crisis...When the going gets tough, this cost-savvy executive chairman gets goingOne of Elektron's main subsidiaries was facing liquidation, and this threatened to bring down the whole group. Some swift cost-cutting and the sale or closure of three businesses saved the day, and at the end of the year Girling spotted an opportunity to repeat the trick and give the group some real scale. He bought Arcoelectric from the receiver, in exchange for £352,000 and the assumption of £1,515,000 of lease finance debt. A property sale and leaseback, which left Andrew Perloff's Panther Securities with 15% of Elektron's equity, and a separate fund raising, put Elektron on a sound footing, and the accounts reveal that Arcoelectric contributed net assets of £2.6m and made sales of £15m last year.So that was a smart deal and helped Elektron to achieve total sales last year of £22.5m. Elektron produces a very wide range of switches, connectors, battery and fuse holders, indicators and other electro-mechanical components that are sold all around the world. Both Bulgin and Arcoelectric publish large catalogues from which 20% of sales are made, while 45% go directly to OEMs (Original Equipment Manufacturers) and 35% are sold through distributors such as Electrocomponents. Elektron controls the entire production process, from tooling through to the injection moulding of plastic parts, metal forming, plating and assembly. This ensures consistent quality, quick response times and the ability to make small batches. Every hour Elektron is winding 60,000 miniature springs, some only a millimetre in diameter, and pressing 200,000 contacts and terminals. In all, it manufactures 72m components each year. This AIM-listed marvel also pays a dividend! Buy today for 75% gainsNot all of these come from East Molesey, or from Bulgin's factory in Barking, Essex. Twenty million and 10m respectively are manufactured in Arcoelectric's factories in Tunisia and Shenzhen. Using what he describes as the "one kitchen, two restaurants" concept, Girling is gradually integrating the production capacity of Bulgin and Arcoelectric, so that orders can be met from either China, North Africa or the UK, depending on logistic costs and delivery schedules. But he also wants Elektron to become a supplier into the domestic Chinese market. At present the Shenzhen factory can only serve the export market, but it is now being established as a "Wholly Owned Foreign Enterprise", which will permit it to sell into the vast local market. This should accelerate the growth of sales, which was a modest 3% last year, and boost Elektron's share of what is a massive market. Global sales of switches are worth $3.8bn per year, while for connectors the figure is $25bn. Girling reckons that Elektron has about 7%-8% of the market segment that it serves, but is winning share from competitors such as Signal Lux and Molveno in Italy, Germany's Marquardt, Schurter in Switzerland and Defond from China. Some of this is due to product innovation. Girling does "not believe in breaking new ground with high technology", and the research and development bill is minimal. But by simply using existing technology in imaginative ways, Elektron's product designers have steadily come up with new products - a recent best seller being a waterproof Bluetooth wireless connector. My visit to Elektron's offices was enough to show me that shareholders' money is not lavished on elegant surroundings, and such tight cost control is one reason why it has bounced back from the £6m of losses run up in the two years ending 31 January 2003 to record a £0.5m pre-tax profit in 2003/4, rising to £1.5m in 2004/5 and £1.8m last year. Even more impressive was the 20% increase in shareholders' funds last year (now worth 8.3p per share) and the cash generation that saw Elektron finish the year with net cash of £443,000 and leave it poised for expansion.RHPS Verdict: In May Elektron reported a 15% year-on-year increase in its order book, and hinted that it might make an acquisition this year. Given the successful turnaround of Bulgin and Arcoelectric, a similar move would surely be well received. Shares in this financially sound, profitable, dividend-paying and growing business trade on below eight times last year's earnings. This is ridiculous and I am setting a price target of 25p. BUY.

The price target is now dated due to the acquisition of Howle Plc lately and it seems the price target will be raised substantialy.