Berisford feels the heat

The Investment Column

It is hard to imagine that Berisford was once a glamour stock. The transformation from a diversified, loss-making commodities business into a more focused kitchens, joinery and catering-equipment group initially won many followers in the City.

From a low of 48p when a new management team came on board in 1992, the shares touched 260p last year as the company bounced back into the black for the first time since 1989 and resumed dividend payments. The improvement continued into the first half, with pre-tax profits rising by 7 per cent to pounds 11.9m and the payout jumping 50 per cent to 1.5p.

But the two legs on which the Berisford bandwagon now stands - kitchen and joinery division Magnet and US commercial-oven maker Welbilt - look a bit wobbly.

Magnet, bought for pounds 58m two years ago, remains very exposed to the fragile UK housing market. In the six months to March, housing starts fell 16 per cent while transactions were 13 per cent lower on the same period a year ago. Building products also suffered, sending the division's operating profits down to pounds 2.3m from pounds 6.5m on sales of pounds 92.9m (pounds 94.5m). Prospects for building products in the UK remain depressed, though there are the first tentative signs of an increase in domestic kitchen sales.

Welbilt, picked up for pounds 198m last year, fared better. It almost tripled profits to pounds 18m as turnover soared to pounds 140m from pounds 46.5m. Piggy-backing on the expansion of fast-food restaurants ought to make sense, but even here Berisford cannot expect a smooth ride.

While the chains continue to go from strength to strength at the expense of traditional eateries, price competition in oven ranges, the core product, is intensifying. Berisford is switching to fryers, grills, steamers and microwaves, but the transition will incur a pounds 1.6m cost this year.

In-fill acquisitions in bedroom products and PVCu plastics are earmarked, though chief executive Alan Bowkett is unhappy about some of the prices being asked.

Pre-tax profits of pounds 33m put the shares, down 15p to 202p yesterday, on a forward multiple of 13, yielding 3.1 per cent. Unattractive.

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