All downhill at Howden

The Investment Column
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Howden looked to have put the difficulties of the early 1990s behind it and the Glasgow-based engineering group saw its shares rise steadily as the heavy loss of 1991 fell out of comparisons.

After its well publicised problems supplying a machine to tunnel under Denmark's Store Belt, the shares fell to a low of 30p but had recovered to 102p by the beginning of 1994.

Since then it has been downhill all the way and the decline has accelerated worryingly in the past few weeks as it has become increasingly obvious that growth at the industrial fans and specialist drilling equipment maker has stagnated. Yesterday analysts were pointed towards pre-tax profits of about pounds 32.5m, barely above last year's pounds 31m, after a 4 per cent rise in first-half pre-tax profits to pounds 11m and a similar rise in earnings per share to 2.6p.

There are clouds on a number of fronts. Germany remains a drag, despite an improvement in orders for specialist drilling machines.

There was little demand for tunnel boring machines and that division has been hived off organisationally so the German management team can improve efficiencies.

In America, although aerospace and processing and packaging equipment continued to chip in healthy profits, the rate of order intake has slowed as expenditure plans are postponed or delayed. That is a worrying sign for a company as cyclical as Howden and goes some way to explaining the lousy rating the market is prepared to assign to the company's earnings stream.

On the basis of forecast profits, the shares stand on a prospective price/earnings ratio of only about 8 at yesterday's 68p, up 1p.

That seems harsh given a comfortable gearing level, the 26 per cent order increase in the first half-year and an optimistic 7 per cent dividend increase.

With a good geographical spread, lower exposure to volatile chunky projects and a yield of 5 per cent, the shares are supported if unexciting.