Bottom Line: How L&B is making a pile

JIM LENG, chief executive of Low & Bonar, the packaging group, turned a well-known retailing axiom on its head yesterday to describe the way he runs the company.

'Rather than piling it high and selling it cheap,' he said, 'we like to pile it low and sell it expensive.'

Profit margins, in other words, are of central importance. It is not a startlingly novel strategy, but it is working.

In the half-year to May, L&B pushed pre-tax profits ahead by 42 per cent to pounds 20.4m. More than half the rise was due to acquisitions, but another boost came from improved operating profit margins which widened from 9.5 to 10.8 per cent.

L&B is known best for its packaging interests: it makes the boxes for Kellogg's Cornflakes and the wrapping for Cadbury's chocolate.

But its two subsidiary operations - moulding plastics and producing specialist materials such as synthetic sports turf - earn the best margins.

L&B makes a 9 per cent return on sales in packaging but 12.5 per cent on plastics and nearly 16 per cent on specialist materials.

Profits growth was helped by acquisitions but the underlying increase was still an impressive 17 per cent.

Earnings per share, despite a 15 per cent rise in the number of shares in issue, advanced 33 per cent to 13.6p.

L&B is not without problems. Recession on the Continent is depressing performance and there are signs of raw material price increases.

But, despite the difficulties, L&B should manage taxable profits of pounds 40m in the full year, putting the shares on a prospective price/ earnings ratio of 15.5 at 403p, up 16p to a near-record high.

That is a premium to the market as a whole but at a discount to the paper and packaging sector. The dividend yield is in line with the market average with good scope for growth. Buy.

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