The failure of Yamaichi Securities, Japan's fourth-largest broker, has worldwide repercussions. In the short term the financial authorities in Japan and elsewhere have been very effective in ensuring that the collapse doesn't spread to other financial institutions. There is little doubt that the Japanese financial system will comfortably cope with this latest corporate downfall.
Indeed it is likely that there will be more corporate failures in Japan in coming months. But the Japanese financial authorities, acting in concert with their international colleagues, should be capable of steering the financial system safely to calmer waters.
From an investment viewpoint, the critical issue is whether the current financial instability in the Far East will result in an economic contraction in that region of sufficient magnitude to create a global recession in 1998/1999.
While a significant economic slowdown in the Far East is now certain, it is unlikely to lead to a global recession. Underlying economic and financial fundamentals in Europe and the US are just too strong and point to steady economic growth in 1998.
But for investors in stock markets, the Asian crisis probably means that current forecasts of company profits will have to be scaled back next year. The Asian crisis is likely to result in some slowdown in overall economic growth leading to reductions in profit projections.
In addition, some US and European companies which conduct a significant portion of their business in the Far East could suffer substantial declines in profits in 1998 and 1999. With stock markets in Europe and America on high ground, all the pointers indicate that a cautious stance should be taken by investors.
In an environment where corporate profits could be under pressure, companies which are showing growth in earnings are worthy of attention.
Close to home, Unidare reported better than expected results for the year to end-September with earnings per share (eps) rising to 24.2p and stockbrokers have increased their forecasts to over 26p for next year.
Unidare has had a chequered history and suffered substantial losses in 1994. The company enjoyed a strong recovery in 1995 with eps rising to 31.8p, but again the company suffered from weak trading conditions in 1996 and its profits fell to less than half the 1996 level.
The shares responded positively to the good results rising by close to 10 per cent and clearly, if this set of profit figures represents a turning point, there could be a very substantial upside to these shares which hit a high of 453p during 1994 compared with their current level of 225p.
Unidare operates in the unfashionable engineering business where it distributes welding and safety supplies in the US, Britain and the Netherlands. It also manufactures specialist engineering products for the computer, telecommunications and medical device industries in Ireland as well as overseas. Although Unidare is a relatively small company, with annual turnover of about £130 million, it is geographically diversified with 50 per cent of turnover in the US and the rest spread roughly equally between Ireland, Britain and Continental Europe. The company has a strong balance sheet and could comfortably fund an acquisition in the £15 million to £20 million range.
Even without an acquisition, the company should be capable of achieving healthy organic growth given good growth prospects in the economies that it is operating in.
All these factors indicate that Unidare represents an attractive recovery situation and investment at current levels could prove very rewarding.
