Small firm success is in selling story

The current interim results season in the Irish market continues to highlight the fact that the Irish corporate sector is performing very well. The table summarises the financial highlights of three of the market's small to mid-size companies.

DCC, which has been one of the markets most consistent performers, produced an excellent set of results for the first half of the year. Sales grew by more than one third driven by organic growth and the benefits of recent acquisitions. DCC's activities now range across the information technology, healthcare, food distribution and energy sectors.

Reflecting DCC's gradual change of focus to value added marketing and distribution the shares have been reclassified from "diversified industrials" to "distributors" which is a sector that commands higher ratings. Therefore, in time this reclassification should have a positive impact on DCC's share price.

The somewhat larger Ryanair, which has a market capitalisation of €1.3 billion (£1.02 billion) produced strong quarterly earnings growth of 26 per cent despite the abolition of duty-free. Clearly, Ryanair's low-cost/low-fares formula continues to pay dividends especially when contrasted with the poor results that have been reported by the large carriers such as British Airways.

Key to Ryanair's success has been its expansion into mainland Europe. As long as costs are kept in control then it should remain a high growth stock.

Barlo, which is the smallest of these three companies with a market capitalisation of €141 million produced a modest rise in sales for the six months to end September, but this translated into a 75 per cent increase in earnings per share.

While the production of radiators is still a large part of Barlo's sales, it is now a pan-European producer of plastics, mainly flat sheet extrusion products. This is a rapidly consolidating industry and Barlo's stated intention is to take advantage of acquisition opportunities.

The debt/equity ratio has been reduced to 15 per cent, which leaves the firm well placed to fund an acquisition from its own resources. Despite Barlo's good long-term track record and the positive outlook the shares are trading on a prospective P/E of only 8.7 and the share price is clearly suffering from the malaise afflicting the small-cap sector.

Of these three companies, Ryanair is the only one to benefit from a P/E that is in fact higher than its international peers. In contrast, DCC and Barlo trade at substantial discounts to comparable overseas stocks.

The ability of Ryanair to maintain a high rating would seem to be a function of the high public profile of the company, and in particular its high profile amongst US investors. As well as being hugely successful at selling airline seats, Ryanair has been just as successful at marketing its shares to a broad domestic and international audience.

The lesson for smaller quoted companies would seem to be that a precondition for a higher share rating is success at selling each company's corporate story to a broad international audience.