Bottom Line: Street promises to purr again

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The Independent Online
CANNON Street Investments, the troubled mini-conglomerate whose chequered history stretches back to the 1970s secondary banking crises, has had more lives than a cat. Yesterday's full-year figures from the group were worse than expected, but it has again managed to claw its way back from a narrow ledge.

From a restated pounds 34m loss in 1991 it slumped to an astonishing pounds 115m deficit last year on sales of just pounds 240m. A loss of this size takes some beating, but then Cannon Street has had plenty of practice over the past quarter-century.

Beginning life as a bank, it nearly went bust with the collapse of the property market 20 years ago, only to re-emerge as an acquisitive industrial conglomerate.

It soon became saddled with debt and, with more than 50 operating subsidiaries organised into 14 divisions, it was also unmanageable. But a new team has rationalised the business - leaving its leisure, electronics and food distribution interests - prompting a pounds 57m goodwill write-off last year. At the trading level it made an pounds 8.4m loss, with interest payments amounting to pounds 7m.

Helped by massive disposals and closures, the group's debts have fallen from more than pounds 75m to about pounds 18m excluding a pounds 25m preference stock. Encouragingly, it is also cash- positive, and the chairman, Tom Long, predicts that the group will return to profits this year.

David Smith, its new chief executive and former boss of Isosceles, the debt-laden Gateway supermarket group, will need to achieve only modest profit margins on annual group turnover of about pounds 120m to produce a taxable result of about pounds 4m this year.

That implies earnings of about 2p a share this year, rating the shares, up 2.5p to 14p yesterday, on a multiple of seven. Although the shares have already soared from a low of 2.5p this year, they remain attractive. But the clearest signal should come from the management itself. So far Mr Smith, who joined CSI last month, has not bought any shares. If CSI's potential is as good as he says, he should put his money where his mouth is. Others could then follow suit.