It's been another good year from this solid engineer.
It's quite a few years since I spent an enjoyable day at the Cambridge headquarters of FTSE 250 Domino Printing Sciences (LSE: DNO), chatting to senior management and touring the manufacturing plant.
Then -- as now -- the company was something of a British engineering success story, with a strong investor following. And this morning's full year results, yet again, didn't disappoint.
Founded in 1978, Domino has carved out a profitable yet global niche designing and manufacturing printers for use in industry: barcode printers, inkjet printers, thermal printers and laser printers. Plus, of course, the specialist inks, ribbons, filters and spare parts consumed by those printers.
The 'best before' date on the cans of baked beans in your larder, for example, could well have been applied by Domino printers -- as could the barcoding and address labelling on the pallet on which the cans were despatched to the store you bought them from.
Sparkling performance
Given the recessionary background to the year's trading, it's difficult to fault the results. For the 31st consecutive year, revenues grew -- only by 1%, admittedly, but growth is growth. Pre-tax profits were up 11%, though, while net cash inflow rose 18%, taking the company's net cash to £29.1 million. A 2009 full-year dividend of 13.03 pence has been proposed, up 10% from 2008.
Domino's track record has also caught the eyes of the analysts at our Champion Shares PRO newsletter and these results will be no doubt be reviewed there in due course.
Regular readers will know that I'm quite a fan of some of Britain's specialist engineering firms, and these are all numbers that I like. Given the recession -- which has seen the company's customers buy fewer printers and consume less ink -- it's a pretty solid performance.
I like the strategy, too. In both its core printers and the fluids and inks that it sells to replenish them, Domino has what Warren Buffett would term a 'moat', and it is investing cash in both R&D and acquisitions to make that moat deeper and wider.
R&D investment during the year, for instance, amounted to £11.5 million, equivalent to roughly a third of operating profits. On the acquisition front, Domino closed 2008 by buying APS, a German integrator of thermal ink jet technology, seen as a market with significant growth potential.
What's not to like?
Most obviously, the share price. Up 4% on today's news, Domino's mid-day price of 306 pence sees the company trading on a forward P/E of 13.3, with two of the five brokers covering the share rating it as a strong 'buy'.
That said, the share price is still down a touch from the levels of 320 pence or so seen in October -- but well up on the levels of 150 pence or so that the shares were changing hands for a year ago, as the world sank into recession. In retrospect, given today's results, investors' worries were massively misplaced.
I've also a couple of niggles with the accounts. For a company that invests so strongly in R&D and market-strengthening acquisitions, share buy-backs seem a little odd. And Domino bought and then cancelled no fewer than 3.6 million of its shares during the year -- suggesting that the company could see nothing better to do with the cash in question.
A question mark also hovers over the earnings per share figure. Earnings per share rose 16% in 2009, up from 15.3 pence to 17.8 pence. But the company also reported an underlying earnings per share figure of 23.7 pence, up just 3% on 2008.
While the basis of the underlying figure is to reflect the impact on goodwill, intangible assets in respect of acquisitions and other exceptional items, I'm not entirely sure why the discrepancy arises. Further research is merited, then.
So is it a buy?
Domino is a solid FTSE 250 engineering business, with a market cap of around £320 million. Profitable, cash-generative and free from debt, it has built and sustained a decent-sized moat -- as this year's sparkling figures show all too clearly.
But at present levels, Domino is quite pricey. Yet without a doubt, the business is one for the watch list. The recession is far from over, and before it does end, the company's share price could well dip into attractive territory. If and when that happens, there's only one verdict: buy.
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