All aboard for BPB recovery

The Investment Column

BPB, Europe's biggest plasterboard maker, has on the face of it reached something of a plateau. The profits recovery since a vicious European price war in plasterboard ended in 1992 came to a shuddering halt last year in the face of soaring raw materials prices and depression in the British, French and Canadian housing markets. Stripping out gains on business and asset disposals, profits were flat as a pancake at pounds 168m in the year to March.

Worse still, the four big European plasterboard groups have reacted to the end of the price war with increases in capacity in Germany, Europe's biggest market. Once all the new plants come on stream this year, culminating in BPB's pounds 50m state-of-the-art facility in Berlin next month, the British group estimates potential over-capacity could hit 50 million square metres, a fifth of current demand.

But there are several reasons prices might hold up better this time, despite the expected flood of new supplies. For a start, BPB's main Continental rivals, Knauf and Lafarge, are in a weaker position to sustain a prolonged price war. The cost-cutting rationale behind many of the new plants is also likely to mean that they will replace rather than add to existing capacity.

Longer-term, the industry's investment strategy rests on plasterboard continuing to be one of the fastest-growing building materials. Last year marked something of a pause, with 6 per cent first-half volume growth in Europe turning into a flat second half. But despite the downturn in German construction, use of plasterboard in the country's housing market is still less than a third of the level of that in the UK and France. The still small eastern and southern European markets are romping ahead, with volumes up 30 per cent overall last year and up to 100 per cent in some.

BPB reckons the German capacity overhang should be absorbed in two to three years. The fact that it has held on to 3 to 4 points of the 10-12 per cent price increases pushed through at the turn of the year lends support to that view. Meanwhile, backed by gearing cut to under 10 per cent, BPB is pushing into new growth markets. It will spend pounds 80m this year on gaining a foothold in Chile, which will form a launch pad for Brazil and Argentina. Further out, with borrowing capacity of up to pounds 250m, BPB may be tempted to have another crack at one of the US industry leaders.

The risk remains that the western European recovery fails to materialise. But assuming profits of pounds 186m for this year, the shares, up 3.5p at 308.5p, stand on a prospective price/earnings ratio of 13 and remain a core holding.

Call charges hit Securicor

Three months ago shares in Securicor soared to new highs on news of plans to simplify the company's antiquated capital and operating structure. The long-awaited move increased liquidity in the shares and was seen as paving the way for a full takeover of the security to parcel delivery group.

But tucked away in the update on current trading that accompanied the statement was a warning that the rate of profits growth at mobile phone group Cellnet, where Securicor holds a 40 per cent stake, was slowing down. Continued investment in building its digital infrastructure and a fall off in the number of new subscribers in the key Christmas selling period were blamed.

It was not until yesterday that the full implication of that statement finally registered with investors. The shares fell 28p to 245p as Securicor posted flat pre-tax profits of pounds 47.6m in the six months to March and repeated almost verbatim the cautious sentiments of three months ago. Turnover rose from pounds 473m to pounds 612m, while the dividend was increased 12 per cent to 0.354p despite static earnings per share of 5.1p.

Cellnet, the main profit centre, chipped in profits of pounds 35.2m, up pounds 2.2m on the corresponding period last year. Subscriber numbers stood at just under 2.4m, but Cellnet made heavy hints yesterday that new customer growth was slowing while average subscriber revenues are falling as the mix of customers switches from corporate to mass-market users.

Elsewhere, profits advanced to pounds 10.2m from pounds 6.7m in parcels distribution but the cellular services side slipped into the red after taking a pounds 4m charge to cover possible bad debts.

Analysts were busy scaling back forecasts for this year by about 10 per cent to pounds 105m, implying a premium p/e rating going forward of 21. That may sound demanding but the hidden value within Securicor could be unlocked if BT decides to snap up the 40 per cent of Cellnet it does not already own. Meanwhile, the shares could be worth as much as 350p on a sum-of- the-parts basis. A good buying opportunity.

Pelican bites off a beakful

On the face of it, Pelican's full-year figures were nothing to complain about - pre-tax profits up 83 per cent to pounds 7.5m from a 63 per cent sales increase and earnings per share 55 per cent better at 7.5p. The shares, however, closed 8.5p lower at 146.5p as investors worried about the sustainability of the group's recent meteoric growth.

It is hardly surprising when the company itself seems to be admitting that last year's 37 openings was a bit more than it could sensibly chew.

A more manageable 22 are planned for the current year which should allow more time to be spent getting returns up from the existing portfolio which now totals 100 sites, mainly Cafe Rouge and Dome restaurants.

To be fair, the group, which started from scratch six years ago, needed something of an opening blitz to create the critical mass over which to spread its overheads and develop attractive buying terms.

An expected pounds 300,000 saving on wine costs alone, thanks to shipping it in centrally, shows the sort of economies of scale that are available to a bigger group.

But there is no doubt that the trading environment of the early 1990s which allowed Pelican to pick up failed restaurants at a song has changed significantly. Pelican is not alone in finding it increasingly difficult to find high street sites at sensible prices, part of the reason for its admittedly successful move out of London.

A rising tax charge means that slowing profits growth will be even more noticeable at the earnings line and forecast earnings per share of 8.5p this year and 10p to March 1998 put the shares on a pretty demanding price- earnings ratio of 17 falling to 15. Despite persistent bid rumours, expect a pause for breath.

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