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A building company with grand designs for the future – MoneyWeek

Hetoldmethataprisonerscellislargerthaneitherastudentsroomoroneinabudgethotel。

Butstill,IthinkIknowwhereIwouldprefertospendthenight…。

Anaturaltargetforthiscompany…

Theprisonbuildingprogramme,alongwiththeplannedconstructionofschools,nursinghomesandkeyworkeraccommodationisanaturaltargetforthetypeofproductsinwhichElecospecialises,productsthatmakeiteasytoconstructmodularbuildingsusingelementsproducedoff-site。

Principalamongstthesearepre-castconcretepanelsusedforwalls,rooms,barriersandsportsstadiumterracingproducedbysubsidiaryBellWebster,whichhasjustopenedanewfacilityatHaveringham。

Workforthepublicsectorshouldprovidesomedefenceagainsttheslowdownofhouse-buildingthataffects14%ofElecosturnover。

ElecohasvarioussubsidiariesincludingonecalledGang-NailSystemsthatIseemtorememberfrommydistantdaysasabuildinganalystusedtobeownedbyRedland。

ThebuildingproductsindustrydoesnotgoinforfancynamesandanotherElecosubsidiaryiscalledInternationalTrussSystems–nothingsurgical,justrooftrussessuppliedtotheSouthAfricanmarket。

Theroof,asKetteleypointedout,isthelastpartofthebuildingtobecompleted。

Inotherwordsitisthelastparttobepaidfor,andElecohashadacoupleofrun-inswithitscustomers。

Butwhilethefinancialcrisisisinevitablycausingafewdifficulties,Elecoisfarbetterplacedthanmost;partlybecauseofitsproducts,partlybecauseithasreadthecyclecleverly,butalsobecauseithasthatonethingthatwewouldalllikerightnow–cash。

Arecession-proofprofit-stream

Asidefrompre-castconcrete,roofingandcladding,timberframeandtimberengineeringsystems,Elecoalsoownscompaniesinvolvedinsoftwareforthebuildingindustry。

Therearedifferenttypesofsoftware。

Thereissoftwareusedinarchitecturaldesign,softwareusedincostestimating,softwarethatmapsandmonitorstheexecutionofaproject,andsoftwarethatessentiallykeepsadailydiaryoftheworkon-site,somethingthatcancomeinusefulintheeventofadisputeinvolvingtheclientandcontractors。

Softwarecontributesjustover10%ofoperatingprofits。

Butitshouldprovereasonablyrecessionproof,especiallyasmuchoftheturnoverisoutsidetheUK。

Aninterestingnewservice(thatcanbeseenatwww。

e-sign。

com)ismadepossiblebyvisualisationsoftware。

Thisisusedbybuildingdesigners,aswellasbyBirminghamCityCouncilwhichusedittovisualisetheimpactofshadowscausedbynewbuildings。

Anewweb-site,calledGrandDesigns,willbelaunchedinOctoberandthiswillenabletheself-buildertodesignandvisualisehisownhouse。

Anotherinterestingserviceallowsyoutodownloadaphotoofaroomofyourhouseandtheneditinachoiceoffloors,thusallowingyoutoseewhattheywouldlooklikeinyourownhome。

ThisisalreadyisuseinGermany,where80%ofthosethatusetheservicegoontobuytheflooringproduct。

SoElecosproductsappealtomoderndesignersandmodernbuildingtechniques,andallowbuilderstomeettheevermorestringentbuildingregulations。

Withabalancesheetlikethis,heresonetowatch

ThisisoneofElecosstrengths,butperhapsthegreatestatthispointisthebalancesheet。

Aformerbanker,KetteleyrescuedElecoin1997whenithadamarketcapitalisationof£3mbutborrowingsof£7m。

Ashetoldme,wedontwanttobeinthatpositionagain。

TodayElecohasamarketcapof£46mandnetcashof£6maswellasa£14mfacilityfromLloyds,arrangedlastyear。

Thisputsitinagreatpositiontomakeacquisitions,butitalsomeansthatatatimewhen,forinstance,theOlympicssiteisreviewingthecredit-worthinessofitssuppliers,itcantakebusinessfromothers。

BrokerCollinsStewarthasraiseditsprofitforecastfortheyeartoJune2009by£0。

3mtoandnowforecastsearningspershareof11。

7p。

TheP/Eratioislittleoversixandtheyieldisover4%。

Elecoismuchbetterplacedthanmostbuildingproductssuppliersatthisdifficultstageofthecycle。

ThatputsitonmylistofsharesthatImnotquitereadytobuyyet…butwhichiscertainlyonmyradar。