Bottom Line: Steel bond is strong

CARCLO and Arthur Lee, the two newly merged steel and wire companies, appeared to confirm the hitherto patchy UK industrial recovery yesterday, both producing much-improved results for the year to 31 March and order books well ahead of July 1992.

Wearing its own hat, Carclo boosted pre-tax profits 55 per cent to pounds 8.8m. It must be equally pleased with the performance of its new partner. Lee, one of the historic names in British metal bashing, which increased profits from pounds 600,000 to pounds 2.3m.

The real question is how much added value will be produced by the merger. There are immediate benefits, such as the rationalisation of the two head offices into Arthur Lee's premises in Sheffield.

The fact that Lee's chairman, Peter Lee, comes on board at Carclo along with several of his directors shows that this was genuinely a friendly merger. That gives Carclo more depth of management and perhaps provides an answer to the question of who will succeed John Ewart, the 68-year-old chairman.

The enlarged group will also benefit from more purchasing power over raw materials and the merger of the wire businesses is bound to produce economies of scale.

Estimates of combined profits of pounds 12.5m this year are probably on the conservative side.

Such an outcome would leave Carclo at 224p, up 10p, on a p/e ratio of just over 15 - about average for the sector. That makes the shares by no means expensive.

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