Bottom Line: Tough retort for below-par Siebe

AFTER 30 years at the helm of Siebe, Barrie Stephens can look back with pride on the performance of the controls and engineering group.

Since 1964, pre-tax profits have grown from pounds 100,000 to pounds 193m and the dividend from 0.1p to 35.2p. Over the past 10 years the shares have risen from 69p to 566p, more than twice as fast as the market as a whole.

There was no room for sentiment in the market yesterday, however, with the shares closing 20p lower after apparently disappointing interim figures. At first glance that seems a harsh reflection on pre-tax profits 17 per cent higher at pounds 94.2m ( pounds 80.3m), earnings per share 16 per cent better at 13.6p (11.7p) and a 10 per cent increase in the interim dividend to 3.66p (3.33p).

But this was no more than the market expected, and scratching the surface confirms that the underlying picture is less buoyant. Strip out the beneficial impact of currency movements, and profits emerge pounds 10m lower than the headline figure - ignore acquisitions, and first-half operating profits are little better than a year ago.

There was no surprise in the fact that the biggest drag on profits came from the European motor industry, where the slump in sales contributed to a 44 per cent fall in mechanical engineering profits from pounds 8.5m to pounds 4.8m. But controls, which represents nearly three quarters of sales, powered ahead, with profits rising from pounds 78.4m to pounds 96.7m. Margins also held up well in compressed air and safety systems.

There is also no denying the impressive amounts of cash the company produces, allowing it to match its promise to reduce gearing to less than 55 per cent within three years of the all-cash Foxboro acquisition. Orders are also arriving faster than Siebe can fulfil them. On the basis of forecast full- year profits of pounds 205m and earnings of 30p a share, the shares stand on a prospective price/earnings ratio of 19. That would be undemanding for a more cyclical business, but Siebe's very resilience is likely to be held against it in a recovery.