The Investment Column: Dicom is fairly valued at this level

Sunny outlook for profits and dividends at CRH - Weak dollar makes Bunzl look high enough for now
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The Independent Online

Dicom has developed a handy niche supplying software and electronic products which help clients put paper-based information on to digital databases. But the Anglo-Swiss group is constantly on the lookout to extend its expertise.

Hence yesterday's €40.5m (£27.4m) purchase of Topcall, an Austrian supplier of software which allows communications such as data, SMS and e-mail to be routed to the right party. The acquisition is expected to enhance earnings even if operating profits were to fall from the €2.3m before goodwill amortisation made by Topcall last year.

There lies the crux of the deal, for Topcall has been through the wars and its profits have been falling steadily. Dicom management, though, is confident that it can turn that around. Nonetheless, the Swiss company has a somewhat mixed record on acquisitions.

A local authority software offshoot proved troublesome several years back and in February the group announced a £2.3m write-off on a £10m investment in the US-based Cardiff Software following its sale.

This should not detract from the underlying quality of Dicom's core business. The main information-capture division pushed operating profits 15 per cent higher to £11.8m on sales 4 per cent ahead to £120m in the year to June.

As the dream of the paperless office moves further into the distance, it is little wonder that Dicom's Ascent product is used by half the world's largest 500 companies. Its growth, though, is obscured by the weak dollar and the continued decline of the group's Swiss distributor of Samsung screens.

Until that is sold, shares, up 25.5p at 699p, look fairly valued on 14 times expected earnings of 51p for this year.

Sunny outlook for profits and dividends at CRH

CRH has a formidable reputation as an acquisition machine, scooping up quantities of small and not-so-small building products rivals. But the hefty bounce-back in the Irish group's first half was as much about the weather as bolt-on buys.

Pre-tax profits soared 71 per cent to €275m (£186m) in the six months to June, with the return to "normal" weather in Finland, Poland and the US providing rebounds in overseas figures. Last autumn's record €333m purchase of Cementbouw was the main contributor to profits from acquisitions. of €78m It will be harder going in the second half, given the absence of the poor weather-related comparatives, increasing energy costs and an adverse currency translation expected to be €26m by CRH. But there is a 17 per cent half-way dividend increase and more of the same promised for the future.

The forward yield still remains miserly at 1.8 per cent, but analysts have raised profit forecasts. On 12 times Dresdner Kleinwort Wasserstein's full-year expectation of €1.62 per share - a 21 per cent advance - the shares, at €18.78, look good value.

Weak dollar makes Bunzl look high enough for now

Bunzl is a company where strong underlying growth is being hidden by the weak dollar. Some 57 per cent of the outsourcing to the cigarette filter group's half-year sales derived from North America. Little wonder, then, that yesterday's reported interim profits were broadly flat at £91.8m.

The picture looks much better once exchange effects are stripped out, with sales, operating and pre-tax profits ahead by between 9 per cent and 10 per cent. Certainly, all is not completely rosy in the US, as May's annual general meeting was warned. Squeezed between discounters like Wal-Mart and specialists, the industry to which Bunzl supplies everything from packaging to plastic gloves is facing a squeeze.

It is pushing further into the convenience sector occupied by the likes of 7-Eleven and Circle K. Bunzl announced yesterday the acquisition of TSN, a leading distributor of goods to the sector. Still only a fraction of the size of the stagnating supermarkets business, it has a growth rate north of 6 per cent.

Bunzl's European outsourcing operation has, in 10 years, turned itself into of the leading supplier of "non-food consumables" to hotels, caterers and supermarkets, boosted by May's €330m (£223m) acquisition of French rival Pierre Le Goff.

After seeing operating profits rise 35 per cent to £29.8m, its contribution is now on a par with the Filtrona division. With Europe further behind on outsourcing than the US, there should be a lot more to go for there. The dollar will continue to flatten profits and earnings, so a forward price-earnings multiple of 14 looks high enough, even with the shares down 7.5p at 424p.