Backing Yule Catto pays off

Investors who backed Yule Catto's £29.7m rights issue in September 1993 have seen their judgement borne out by the share price.

Although down from the peak of 336p it hit nearly a year ago, at 270p, up 19p yesterday, it remains well clear of the 215p rights price.

The proximate cause of the latest jump was the release of annual results showing the speciality chemicals and building products group had raised pre-tax profits from £18.2m to £28.5m in the 12 months to December, well ahead of market expectations. A final dividend of 4.2p brings the 1994 total to 7p for a rise of 12.9 per cent on 1993.

Last year's record profits were flattered by exceptional costs of £3.7m taken in the previous 12 months. Yule also got a boost from lower interest costs,slashed from £2.28m to £1.07m, as the rights proceeds kicked in for the full year.

But that should not detract from an impressive performance in containing the effects of soaring raw material prices towards the end of 1994.

The chemicals side continued its unbroken record of profit increases throughout the recession, with a jump from £21.5m to £26.5m at the operating level last year.

And Lord Catto, who combines his chairmanship of the family company with the presidency of the merchant bank Morgan Grenfell, painted a rosy picture of the future yesterday. Several of the group's plants are facing capacity constraints, he said, prompting the commissioning of new plant at home, as well as in Malaysia and South Africa. As a result, capital investment rose from £7.88m to £9.45m last year and will increase again in 1995.

The tightening market means Yule has been able to progressively increase prices, while higher volumes have helped offset the rising cost of raw materials.

Building products saw a healthy rise in operating profits from £5.03m to £6.3m last year.

Group profits of £34.5m this year would put the shares on a prospective price-earnings ratio of 13.

They look reasonable value, given the improving outlook, although the market remains tight, with over 40 per cent of the equity in the hands of one big Malaysian investor and the family.