A bit of colour at Yorkshire

INVESTMENT COLUMN

Selling dyes for the textiles and leather industries is an uncomfortable market niche when raw material prices are rising and consumer demand is weak. No surprise then that Yorkshire Chemicals' full-year figures were down both on last year and on analysts' forecasts.

At pounds 10.6m, pre-tax profits were 26 per cent lower than 1994's pounds 14.3m. Even stripping out a one-off pounds 1.6m restructuring charge the underlying decline was about 11 per cent as trading conditions, which were difficult throughout the year, deteriorated in the final few months. The City was also disappointed by the decision to leave the dividend for the year unchanged at 8.6p.

In that context it is also no surprise that Yorkshire's shares have been such a disaster over the past two years. From a high of 479p at the beginning of 1994, the shares closed unchanged yesterday at 263p, a 45 per cent decline during a 24-month period when the market has risen by almost 10 per cent.

There is, however, a price for everything and, in the wake of the company's relatively sanguine view of prospects for 1996, the bears of Yorkshire are plainly running out of steam. Orders strengthened in the final quarter of the year for the UK-based operations and the improved trend has continued into the first quarter of this year.

Also encouraging have been a number of price increases for process chemicals and dyestuffs for leather, which appear to have been fairly widely accepted. Consumer demand is expected to increase during the year in the run-up to the next election and, combined with more focus from a chastened management on costs, profits could bounce quite quickly.

Forecasts of pounds 14m this year and pounds 16m next time put the shares on a prospective price/earnings ratio of 12 falling to 11. That represents a reasonable buying opportunity, backed up by a yield of 4.4 per cent.