Bottom Line: Booker runs hard to stand still

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BOOKER is in one of the City's least favourite sectors - food manufacturing - and in the commodity end at that. Despite that, its reputation is enjoying a renaissance.

The reason for the revival is the appointment of Charles Bowen, formerly with Hillsdown Holdings, as its chief executive late last year. In the past three months the shares have risen by nearly 15 per cent.

Despite flat interim profits they rose another 22p to 460p yesterday. Pre-tax profits went up from pounds 29.9m to pounds 30.5m for the 24 weeks to 18 June. Operating profits, however, slipped back from pounds 37.2m to pounds 35m. Earnings per share fell to 9.8p from 10.25p.

The market's eyes, however, were less on the profit performance than on cash flow.

The improved cash inflow of pounds 53m in the half, compared with pounds 28m last time, cut borrowings from pounds 202m to pounds 149m. That was largely due to the implementation of working capital controls. Booker increased its turnover but the value of stock was reduced by 8 per cent to pounds 292m and debtors also reined in.

There should be more to come. Booker currently turns its stock in five weeks, but Mr Bowen aims to bring that down to 14 days. He also hopes to increase operating efficiency by centralising distribution.

Given the continued pressure on food manufacturers, Booker is running hard to stand still. Despite the improved efficiencies, profits are expected to rise only pounds 3m to pounds 90m this year.

Dividends come out of cash, however, and the improved performance there was enough to justify a modest rise in the dividend from 7.5p to 7.7p, giving a healthy yield of 6.1 per cent.

But Booker is not without weaknesses. The dividend is covered only 1.2 times by earnings, and while a narrow margin still earns good money if the sales are high enough it is vulnerable to raw material cost increases and pricing pressures.

Booker is not a growth stock, but is worth buying for income.