Gamble of the week: Britain's world-class tech firm

While investing in technology is always risky, this British firm is a world leader in making electronic components, says Phil Oakley.

People often talk about Britain's declining industrial base. But not enough is said of the world-leading technology and engineering firms that remain in Britain. The FTSE 250 index contains plenty of them.

Take Laird (LSE: LRD). It makes specialist components that protect electronic gadgets from electromagnetic interference and heat. It also makes products that allow electronic gadgets and devices to connect with one another wirelessly over the internet and over mobile-phone networks.

The firm's share price has bounced up and down a lot over the past year, but overall it's done nothing, whereas the FTSE 250 index has risen by more than 25%. This massive underperformance is largely because Laird has been in a period of transition, and investors are still making up their mind about whether they like what they see.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The problem is that Laird had its fingers burned slightly by getting a reasonable chunk of its money from the mobile-phone business. This part of the business took a battering due to the decline of Finnish mobile group Nokia in this area.

However, Laird has now got itself out of the mobile-phone antennae market and has streamlined its business. It is also diversifying its customer base to give it a more stable income stream. I think there's grounds for optimism here, and that as a result, Laird could be a decent and potentially very profitable share to hold in your portfolio over the next couple of years.

Laird's products are used in smartphones, tablet computers and games consoles. With devices becoming more complex, there's ever-more need to protect them from heat and electromagnetic forces. This trend should help sales grow. More and more devices are being connected to the internet, while the growth of 4G mobile-phone networks and telematics (monitoring devices) in cars also augurs well for Laird's wireless products.

Investing in technology is, of course, risky, because the landscape can change very quickly. But Laird is good at what it does and it gets the bulk of its sales from fast-growing Asian and North American markets. It fended off a takeover bid last year, and bid interest could return.

It doesn't have too much debt. It also pays a big dividend, which is growing. The shares yield 5.5%, growing to 6% in 2014. Although profits will be flat this year, analysts think they will grow by 15% in 2014, which puts the shares on just over ten times next year's earnings. Despite rising strongly in recent weeks, at 220p, the shares are worth buying.

Verdict: buy