BICC is still turning that corner
The Investment Column
Thursday 15 August 1996
Profits before exceptional items edged up pounds 3m to pounds 63m in the six months to June, leaving underlying earnings per share fractionally higher at 6.6p (6.5p). The real disappointment lay in a further swathe of exceptional items and provisions after last year's whacking pounds 127m write-off, which looked like a kitchen sink job at the time. BICC is taking a further pounds 65m of exceptional charges, of which the German cables business accounts for pounds 25m and most of the remainder relates to a belated act of realism about the development site in London's Spitalfields, cutting its value to just pounds 30m.
To be fair, Mr Jones hinted strongly at the time of the full-year results in February that Germany would require further action in view of deteriorating market conditions in the wake of a price war there. Following the decision to get out of cable for the building industry, the knife is being taken to the retained high-voltage power cable operation. That should boost margins and there is welcome news that the market is showing signs of stabilising after the recent action to reduce capacity by the big players, which as well as BICC include Alcatel and Siemens.
There is scope for optimism that Mr Jones can deliver on his aim to raise return on capital in cables to 20 per cent. Action taken so far was predominantly responsible for lifting profits from BICC Cables, which groups operations in Europe, the Middle East and Asia, from pounds 37m to pounds 51m. Meanwhile, the consolidation and refocusing of the North American business saw underlying profits rise from pounds 6m to pounds 8m, when stock gains and losses are ignored.
More of a question mark hangs over BICC's ability to revitalise Balfour Beatty in the forecast 18 months. Stripping out a maiden contribution of around pounds 9m from three British Rail track maintenance operations acquired in April, there was a loss in the region of pounds 8m in the half-year. Success in winning private finance initiative projects and management changes will not be sufficient in themselves to do the trick while markets remain so difficult. Mr Jones is doing a decent job, but circumstances remain against him. Pre-exceptional profits of pounds 134m this year would put the shares on a forward multiple of 20, which is pretty demanding.
Glynwed rescued by acquisition
Thank goodness for Victaulic, the plastic pipes and fittings group that Glynwed acquired a year ago for pounds 150m. Without its pounds 8.3m contribution in the half year to June, the Aga stove to metal processing group's interim figures would have looked even more disappointing.
Victaulic's profits limited the damage at the pre-tax profits line to a 3.1 per cent decline from pounds 41.5m to pounds 40.2m but there was a price to pay. Earnings per share, the more important measure of course, emerged 17 per cent lower at 10.99p (13.23p) as the profits were spread more thinly over an enlarged share register.
The problem with Glynwed is that despite its best efforts it remains wedded to the UK and German economies and especially their consumer and construction industries. The Victaulic acquisition added a slug of less cyclical utility pipework but the group is more dependent than it might admit on a marked upturn in the general economy.
It is also a victim of, and unable to control, the volatile metals price cycle. The price of stainless steel last month dipped below the previous low for the metal struck in January 1994. Aluminium has also been on a downward trend for more than a year. That led to a 6 per cent reduction in turnover from the division and a halving in profits to pounds 6.1m.
That took the shine off Pipe Sytems, which benefited from the inclusion of Victaulic to see sales rise 84 per cent to pounds 182.5m and profits up a handy 49 per cent to pounds 15.8m. It is now second only in profit terms to the metal processing arm, which chipped in a broadly unchanged pounds 17.1m as the mix of business changed to higher-margin steel work.
The last of Glynwed's four divisions (down from six as part of an ongoing attempt to refocus the group into growth areas) was a curate's egg. While consumer items such as cookers and sinks grew strongly, the demand for drainage systems, covers and gratings, especially in Germany, was weak.
Full year forecasts emerged from yesterday's quite heavy downgrades at about pounds 85m this year and pounds 96m next. The recovery will come eventually, but in the meantime a prospective price/earnings multiple of 14, at 332p, falling to 12 is high enough.
MAID is worth waiting for
MAID has always been the ultimate jam tomorrow stock, investing heavily for a pay-off later. Now, just as the supplier of on-line information and research looks to be fulfilling its promise, there is talk of takeover. Potential predators include Reuters and Reed-Elsevier, though any takeover would need to be agreed by founder Dan Wagner and the other directors, who control around 40 per cent of the shares between them.
MAID has a highly regarded product but is a relatively small player in a market being scrapped over by giants. Rivals include Reuters, Dow Jones, Reed Elsevier's Lexis-Nexis and Knight Ridder's Dialog, to name a few. These companies have deep pockets but their systems lack some of the refinements of MAID's higher- price service which supplies business information such as newspaper cuttings and market research to its subscribers. MAID has a head start, the challenge is to make that count.
The crock of gold is the huge US market, which is where MAID is investing heavily. It was largely expansion across the Atlantic that caused it to slip to a pre-tax loss of pounds 1.9m in the second quarter compared to profits of pounds 197,000 in the same period last year.
MAID now has 11 US offices, of which seven have opened this year. Some 1,200 new corporate subscribers were signed up in the second half, of which two-thirds came on stream in the second quarter, more than forecast.
MAID has already signed partnerships with manufacturers like IBM and service providers such as CompuServe. Other deals are likely with cable and telephone companies or even manufacturers of hand-held computers such as Psion. Internet growth will also help.
Losses of pounds 5m are predicted this year before bouncing back to profits of pounds 15m the year after. The shares finished 3p higher at 271p yesterday, capping a good, if volatile, run since flotation at the beginning of 1994. If you can stand the ups and downs, hold on.
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