7 JULY 1973, Page 36

Account gamble

Mitchell Somers

John Bull

The recent record of Mitchell Somers has been nothing to write home about. Pre-tax profits last year sank from £598,000 to £310,000 and in the first half of the current period there was a further slide in profits from £142,000 to £116,000.

So why should I pick this as a short-term gamble? Basically the reason is that Mitchell Somers is a first class recovery situation, the second half (with the full year figures now awaited) should have made up some of the shortfall of the first six months, and finally, a take-over cannot be ruled out.

First, however, let me explain a little about Mitchell Somers' business. Its traditional operations are that of forgemaster and engineer and it manufacturers die blocks, crankshafts and form rolling machines. Recently diversification has taken the group into the field of high pressure hydraulic equipment.

Now part of the trouble over the last year was a result of the general economic downturn, with the capital equipment industries depressed and the situation aggravated by the power strike. Overall turnover was down by some 12 per ctnt.

More recently price restraints have prevented the group from recovering higher costs. However, on both these fronts with the economy much improved and prices raised last autumn, there is a good deal more cheer. Also I like the way, that Mitchell Somers is seeking new fields, for apart from pressure hydraulics the company has been working on a new water jet cutter and this has proved very popular.

I mention takeover possibilities in my assessment of the shares because J. F. Nash Securities has built up a stake of around a.fifth in the company. And I notice that the asset value is nearly 27p against the current price of 19p. If Mitchell Somers manages to recover the ground lost in the first half, to last year's profit level, then the PE ratio is about 16. This might appear a heady rating but a further recovery to 1971 profits would indicate a fully taxed PE ratio of only 7+.

When I come to weigh these factors up, therefore, it is easy to get excited about Mitchell Somers and I think the market will get my point when it sees the full year figures shortly.