Allen discovers tools for success

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Bolton-based Allen group was a microcosm of the construction sector through the early 1990s, with a spread of activities ranging from contracting to housebuilding. That left it exposed to the chilly recessionary winds blowing through the industry at the time, but, led by a timely expansion in tool hire, Allen is back on the recovery track.

Yesterday, the group announced pre-tax profits more than doubled to pounds 6.2m in the 12 months to 2 April, up from pounds 3.05m and nearly four times the recent low of pounds 1.51m in 1993. Earnings per share leapt 58 per cent to 13.7p last year, and the dividend goes up 4.8 per cent to 5.5p, after a final of 3.5p.

The hire side raised operating profits from pounds 1.36m to pounds 2.96m in the latest period, boosted by adding Suffolk-based Kendrick for six months. Bought for around pounds 3m last September, it has chipped in pounds 600,000. There was also good organic growth from the existing business and the return on capital is a chunky 33 per cent.

That is around double that of housebuilding, traditionally the mainstay of Allen, where profits jumped from pounds 1.79m to pounds 2.51m on the back of a 39 per cent rise in house sales to 424 units. But with the market still in the doldrums, Allen is warning that completions this year will be 10 per cent down.

Elsewhere, Allen is something of a rag-bag. The group is a minnow in contracting and, given the cut-throat margins, it is hardly surprising that the traditional business ran up losses last year. Only an excellent year from the design and build side kept overall divisional profits ahead. Meanwhile, Ryan, a civil engineering business acquired for pounds 6.9m last year, has proved mildly dilutive and a warranty claim is being pursued.

Analysts are looking for profits to hit pounds 7.8m this year, boosted by a full year from acquisitions, putting the shares, unchanged at 163p, on a prospective multiple of 10. With half the profits likely to come from the hire business, Allen could be in line for a re-rating, although disposing of some of the smaller businesses might speed the process.