UK: Walker has his work cut out to rebuild confidence in Widget plc.

UK: Walker has his work cut out to rebuild confidence in Widget plc. - Investors are waiting to hear, says Peter Thal Larsen, what plans new McKechnie boss Andrew Walker has for the engineering and plastics group.

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Last Updated: 31 Aug 2010

Investors are waiting to hear, says Peter Thal Larsen, what plans new McKechnie boss Andrew Walker has for the engineering and plastics group.

Despite a doubling of earnings since 1992 and brokers expecting the trend to continue, McKechnie's shares haven't done anyone any great favours over the last few years, but in the engineering sector, that's not too bad a review.

Andrew Walker, the new chief executive at the specialist engineering and plastics group, reckons the group is a success. He was given the job when long-serving boss Michael Ost decided to quit in January, after 10 years in charge.

When Ost took over, McKechnie was the archetypal West Midlands metal-basher, concen-trating on brass extrusions and selling largely in the UK. Now 10 years on, it supplies specialised parts to its blue-chip clients around the world.

McKechnie's extensive range of seemingly humdrum products - it's the world leader in the supply of plastic wheel trims for cars, and makes the plastic part that provides the draught effect in cans of Guinness - have earned it the nickname Widget plc. But that earnings record speaks for itself.

So, Walker has his work cut out. Given that his previous job was running Welsh electricity utility SWALEC, until it was swallowed up by Welsh Water in 1995, his qualifications may seem a bit light. But he also had a stint in charge of the polymer engineering division of aerospace engineer Dowty, now part of TI Group. And the animated way in which he describes how McKechnie's engineers invented a new way for shaping metal hoses on cars, suggests that engineering is still very much his first passion.

Clearly, there is no call for a radical change in direction. Since taking over in March, Walker has visited every one of McKechnie's 50 operating units. On the whole, he is impressed, praising McKechnie's strong financial controls and well-invested facilities.

He fully supports the existing strategy. McKechnie tries to forge close links with customers, getting involved at the design stage. It then aims to upgrade products through the innovative application of its engineering expertise, while reducing costs at the same time.

Walker also spends a lot of time talking about recycling the company's expertise with other customers and in other markets. Since the components it supplies are mostly a small detail of the final product, it can build a large market share without upsetting its clients. A classic example is a bolt McKechnie originally designed for Rolls-Royce aircraft engines.

It now also sells them to Pratt & Whitney and General Electric, giving it a commanding share of the market.

So what does Walker plan to do? He talks mainly about making sure that the strategic message filters down to all of McKechnie's operating units.

He also plans to concentrate on those areas where the strategy works best, primarily the global automotive and aerospace markets. But he will have to spend a lot of time talking to investors in the City. After Ost's sudden departure and greased by currency worries, the shares slumped by 40%.

Even after a recent revival, they seem to be about the 15th cheapest share in the top 350, using Jim Slater's favoured investment measure, the PEG (which compares earnings growth to the share's rating).

Walker points out that lower raw material costs largely cancel out the strong pound's squeeze on exports. So that just leaves the boss factor.

Investors appear wary of McKechnie's diverse and often obscure range of products, but with the new man promising only more of the same, it's going to be a purist revival.

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