Aga market warms up: The Investment Column

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Glynwed International, the Aga cookers to metals distribution group, has been trying hard to escape the business cycle. Mid-way through 1995, it beefed up its presence in the market for UK infrastructure projects when it paid pounds 170m for Victaulic, a maker of pipeline parts for the water industry and for BG, the transportation side of the old British Gas. It followed that up last year by dumping four businesses with combined trading losses of pounds 900,000, principally the historic Wednesbury Tube copper pipes operation.

The losses and expected losses on the disposals accounted for the bulk of Glynwed's pounds 16.2m exceptional charge last year, up from pounds 700,000 before, cutting pre-tax profits from pounds 84.2m to pounds 70.1m in the year to December. But even stripping that lot out, the marginal rise from pounds 84.9m to pounds 86.3m suggests it has a long way to go to break free from the cycle.

Not surprisingly perhaps, the good news came from the consumer businesses. Glynwed shifted 15 per cent more sinks and cookers last year, with its up-market products doing particularly well. As well as the Agas, which sell at up to pounds 8,000 a piece, the less exalted Flavel-Leisure cooker business is expanding capacity to meet demand for its new Rangemaster offering, which retails at up to pounds 1,800.

The pipe systems business was boosted by a first full-year contribution of pounds 15m from Victaulic, but much of the rest of Glynwed was hamstrung by weak European markets and a slump in the price of non-ferrous metals. The weak German market hit demand for drain covers and the like, while the division bashing engineering steel into the shapes required by makers of everything from hand tools to tractors saw volumes slump 7 per cent in 1996. Exports, mostly to Europe, slumped pounds 15m and the metals processing operation did well to hold its profits fall to 3 per cent.

The real pain, however, came in metals distribution, where a 40 per cent slide in aluminium prices sliced profits by 44 per cent to pounds 12m.

Many of Glynwed's problems in 1996 should not recur this year, when the continued upturn in the cycle should help. It will also most likely use its 26 per cent gearing to continue diversifying outside the UK. Assuming profits around pounds 94m, the shares, down 0.5p at 304p, stand on a modest multiple of 12. Attractive only as a short-term buy.