Latest Government figures show that the UK's beleaguered manufacturing sector is growing at twice the anticipated rate. And where better to take the temperature of industry than the Black Country?
Last week I visited Tricorn (LON:TCN), a Midlands manufacturer that is not so much a metal basher as a metal bender. Long standing subscribers of Red Hot Penny Shares may recall that this admirable little company delivered us a 138% return in 2005. Since then it has been battered by the recession. But it is now showing every sign of staging a recovery.
I like manufacturing men. They are straightforward and realistic. They work in grubby premises that City gents would not enter without rubber gloves. They've seen plenty of ups and downs, so they know better than to look further ahead than the current order book.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
All the same, there was no doubt of the prevailing sense of optimism at Tricorn, a reflection of the views of its major customers.
A thriving business in high precision parts
Tricorn has four manufacturing businesses. Two of these are still in the doldrums: RMDG Aerospace, which supplies rigid pipes and assemblies for aero engines; and Redman Fittings, which makes a unique system for joining polyethylene pipes. But the two major subsidiaries that account for over 70% of Tricorn's sales are going great guns. One of these is Malvern Tubular Components and the second, the subject of my visit, is Maxpower Automotive.
Tricorn's specific skill is taking a length of pipe and bending and twisting it into a very specific shape. Chief Executive Mike Welburn pointed out that engine and mechanical plant designers tend to decide the conformation of all the major parts first. Then they simply assume that these can always be connected by the necessary pipes and cables.
As an example, I was shown a number of oil dipsticks. Lift up the bonnet of your car and the dipstick is easy to find and most probably a straight piece of metal. However, in some of the off-road vehicles made by Tricorn's customer Perkins, the oil tank is hidden behind a number of other components. It can only be reached by a long and twisting dipstick made from a flexible spring. This one item, of which Tricorn makes numerous versions, is a good example of the sort of high precision, low volume parts that it makes to exacting specification.
Malvern Tubular Components handles larger tubes, which are supplied to customers in the power generation, mining and oil industries. This subsidiary is now on course for a record year. And it's about to embark upon an investment program to increase capacity and broaden its scope.
Maxpower Automotive meanwhile deals with slimmer tubes, twisting them into intricate shapes typically for off-road vehicles such as heavy earth movers. As such, it is very much dependent upon the fortunes of its customers. But these are clearly on the rise.
Claim your special FREE report: 10 simple rules for maximising your penny share profits
- Receive the stock market wisdom of a top-level penny share expert
- Your essential guide to playing the small caps market
Why manufacturers are returning to the UK
An important lesson from my visit was the extent to which Maxpower Automotive Components works with its customers. Gone are the days when engine manufacturers would simply source components from whichever supplier offered the cheapest price. Computer-based design modules are shared by Maxpower and its customers, enabling them to jointly perfect the design of components.
Tricorn regularly suggests improvements to its customers: for example, in the area of lightweight nylon as opposed to metal components. It is a reliable as well as an innovative supplier. Today, manufacturers demand components that are 99.9% reliable; but they are pushing for 100%.
To this end, a mistake-proofing system known as Poke-Yoke' (based on the Japanese term Poka-Yoke meaning fail-safing') has been introduced. It ensures that each product can be mechanically checked to instantly spot any defect.
The demand for collaborative design and this zero-defect culture is driving out weaker manufacturers. In Welburn's view, it's helping to shift the balance of advantage away from cheap Asian manufacturing and back to the UK. So Tricorn is in good shape, and the same could be said of most of the UK's manufacturing industry. The sense of crisis after the banking crash made manufactures cut hard and early, and conserve cash.
Today Tricorn has little debt. According to the forecasts of broker Arbuthnot, it's on course for a profit of £0.75m in the year to March 2011, rising to £1.1m and £1.4m in the two years following. That makes Tricorn's sub-£5m stock market value look undeservedly low.
This country's manufacturers are used to be being taken for granted by politicians and maligned in the City. But if Tricorn's experience is any guide, they could be ready to make a comeback. And I'll certainly be following the fortunes of a few penny specialists in this industry over the year ahead.
This article was first published in Tom Bulford's twice-weekly small-cap investment email The Penny Sleuth.
Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund.
Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.
Follow Tom on Google+.
Energy price cap to fall 12.3% from April - what it means for your energy bills
Ofgem, the energy regulator has set its latest price cap which will see energy bill drop by 12.3% this spring. Here's what to expect from April
By Henry Sandercock Last updated
The end of China’s boom
Like the US, China too got fat on fake money. Now, China's doom is not far away.
By Bill Bonner Published
The end of the war on drugs?
Features Two American states have legalised the use and possession of marijuana – is this the start of a ceasefire in the global war on drugs? James McKeigue reports.
By James McKeigue Published
Is Britain on the road to disaster?
Features George Osborne is now relying on quantitative easing to fund spending. That is dangerous, says John Stepek – investors should act now to protect their wealth. Here, he explains how.
By John Stepek Published
Three growing trends that will make you big profits on the internet
Features More and more of us are online – looking for love, for entertainment, or for a quick buck. Backing the leaders will prove lucrative, says James McKeigue. Here, he tips four stocks to buy now.
By James McKeigue Published
Your ticket to an energy bonanza in East Africa
Features Southeast Asia is increasingly turning to Africa to fulfil its energy needs, says Lars Henriksson. Here, he explains why, and reveals the best way to profit.
By Lars Henriksson Published
How to profit from 'smart farming'
Features The global food supply is under pressure from the growing world population. That's creating some interesting developments in farming, says Merryn Somerset Webb - and opportunities for investors.
By Merryn Somerset Webb Published
Two ways to play the Latin building boom
Features While Britain wallows in debt, Latin America is forging ahead with massive infrastructure projects, says James McKeigue. Here, he reveals a great story that most investors are missing out on.
By James McKeigue Published
Could Cuba become oil-rich?
Features Vast untapped oil reserves off the coast of Cuba could spell an oil bonanza for the Caribbean island. It's high risk, says Tom Bulford - but for plucky investors, the rewards could be massive.
By Tom Bulford Published
Why small caps look set to rocket this year
Features The credit crunch took a brutal toll on the small-cap stocks in London's Alternative Investment Market. But this year they look set to beat the FTSE 100. Tom Bulford picks out some of the most promising plays.
By Tom Bulford Published