Companies: MTG   

Steel galvanising does not sound the sort of thing that, well, galvanises investors.

What is attracting a whole raft of small company funds – from Friends Ivory & Sime to Elderstreet and Close Brothers – is the business that Metnor is pulling in from growth industries. It is servicing companies in the oil and chemicals industry and in telecoms.

Cannily, Metnor has converted some of its high-tech customers into acquisitions, enabling it to offer higher added-value services and products. And the acquisitions have been targeted to augment the group’s product range.

Take the example of telecoms – currently the major motor of growth and supplying two-thirds of profits. Metnor not only provides masts or aerials but complete environments – dust-free and all set up – for switching centres, internet data storage and telephone nodes.

While telecoms companies might be having problems funding their ambitions, forking out money for operations on the ground is a priority. There may be a slowdown in industry growth rates overall, but Metnor has around £30 million of contracts in hand. That compares with total group turnover of £39 million last year.

Trading in the first three months of the current year has brought in contracts large enough to take the galvanising plants in Middlesbrough and Chesterfield up to capacity – a 20 per cent rise in volume compared with the second half of last year.

Newcastle-based, Metnor started life supplying the northern shipbuilding industry. Now its galvanising side churns out steady growth supplying basic products for a wide spread of industries, from high-tech to oil rigs and agriculture, to motorway barriers and lampposts and fencing.

Cash flow has been used to add the higher margin-producing companies – electro-mechanical engineering businesses supplying retailers and pharmaceutical companies as well as telecoms.

It has also added offices in London and Glasgow to complete its UK coverage, and has been expanding into supplying telecoms companies in Europe.

In 2000, Metnor generated earnings per share of 18.6p against 13.5p before. This year it is expected to lift profits from £4.27 million to around £6 million – producing earnings of around 27p.

The company’s annual target growth rate for the business as a whole is over 35 per cent. Right now it is exceeding that very comfortably indeed.Run by Stephen Rankin (one of the two Rankin sons), who started in the family firm 18 years ago at the age of 19, Metnor knows exactly where it is going and how. It wisely walked away from an offer for Ash & Lacey last year, refusing to match a rival all-cash bid.

But, with net cash of £5 million, it is still in the market for small acquisitions, and has the institutional backing to gear up with paper for the right deal.

Metnor deserves better than an engineering sector rating. Buy.