Bottom Line: Not much tread on Avon's shares

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YESTERDAY'S one-for-four rights issue at 440p a share is the first Avon shareholders have faced for four years. They will not need reminding, however, that they shelled out 500p last time, only to see their shares fall to a low of 214p.

A recovery in the share price is one reason for the cash call. The other is a hairy-looking cash-flow statement. Almost pounds 10m slipped out of the tyre company in the first six months, more than in the whole of last year.

A pounds 36m capital expenditure programme over the past three years has pushed gearing up to 62 per cent, leaving shareholders as the only way of funding a pounds 40m shopping list.

Balancing those concerns are an impressive set of interim figures, a bullish management and a genuine set of proposals.

Pre-tax profits in the six months to April rose 22 per cent to pounds 5m. Turnover was 16 per cent higher at pounds 133m, earnings per share jumped 40 per cent to 15.5p and the interim payout was kept at 5p.

Avon is right to invest at this stage in the cycle. Extra shares mean, however, that earnings are unlikely to rise much above last year's 29.2p for the next two years. A forward p/e of 17 at yesterday's close of 509p means the shares are high enough. Ignore the rights.