by CHRIS BRAGG

Stadium Group – 56.5p

Regular readers of Share Watch may recall that we featured this company in June last year when the share price was 62.5p. Given the solid progress that has been made since then, we are surprised that the share price has fallen back, although this is more to do with the stockmarket and investors than the company itself.

The share price has fallen by 9.6 per cent since then, although the FTSE AIM All-Share Index has fallen by 39.2 per cent, so Stadium Group has, in fact, held up well. One reason for the AIM market falling is the so-called flight to quality, which has seen investors move out of smaller companies towards larger stocks which has led to many smaller companies’ share prices being marked down, even though they may continue to perform well. Stadium’s share price fall provides investors with a good opportunity to take advantage of this pricing anomaly.

Stadium Group operates through three divisions. Stadium Electronics, which is the largest business, designs and manufactures a range of electrical products for original equipment manufacturers from facilities in England and China. Stadium Power designs and manufactures power supplies and converters. The business recently expanded but remains the smallest arm of the company. Branded Plastics consists of two businesses, the first of which manufactures products such as baths, potties and cutlery, and the second of which supplies a range of products including ventilation equipment, safety products and hand tools.

In the six months to June 30, group revenue increased by 16 per cent to £23.06m (2007: £19.88m) while pre-tax profits rose by 12.9 per cent to £1.40m (2007: £1.24m). Earnings per share were 8.3 per cent higher at 3.9p (2007: 3.6p) and the interim dividend was raised to 1.25p (2007: 1.20p). These were excellent results considering the challenges posed by increasing commodity and energy prices and excellent cash conversion allowed the group to reduce its borrowings to £0.14m at the end of June from £0.5m at the beginning of the period.

Although the group is expecting challenging conditions to continue, the trading outlook continues to be satisfactory and the group’s broad spread of sales over different sectors and geographical regions should provide some protection against a downturn in any particular sector or region. The share price stands on a prospective p/e ratio of 7.3x and the shares sport a prospective dividend yield of 6.9 per cent providing scope for re-rating. We see these shares as a buy.

WARNING: Opinions expressed are the writers’ judgments at the time of writing. The information does not constitute a personal recommendation and readers should seek their own professional advice as to the suitability of the investments.