Bottom Line: Uninspiring time at Coats

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The Independent Online
THOSE who fretted that yesterday's results from Coats Viyella would contain some unpleasant shocks were reassured. Taxable profit was up a decent 10 per cent to pounds 69.2m for the six months to 30 June - enough to send the shares up 6p to 226p. The underlying picture, however, is more gloomy, with operating profits stagnating at pounds 80.5m - some justification for last week's 20p fall.

The difference was largely lower interest charges. Coats' gearing fell from 74 to 41 per cent, helped by the conversion of pounds 120m of preference shares into equity.

Operating profits from Coats' biggest subsidiary, making thread, were static at pounds 47m. Yarns and fabrics was up from pounds 8.6m to pounds 9.3m and precision engineering - maker of things like electric screwdrivers - rose a respectable 7 per cent to pounds 14.6m.

But profits from clothing and fashion retail declined. Clothing - the division that supplies Marks and Spencer - was caught out by an unusually sudden change in consumers' taste for woollens. As a result profits slipped from pounds 5.4m to pounds 5.1m.

The contribution of fashion retail - the division which encompasses Jaeger designer shops - also fell, by 25 per cent to pounds 3m.

In addition, Coats continues to be dogged by problems from less developed countries. Long-running problems in Brazil appear close to resolution, but now Coats has difficulties in Turkey, Venezuela, Colombia and Chile.

A prospective p/e ratio of 14.6 puts Coats ahead of its textile peers and the stock market as a whole. The 4.8 per cent yield offers some compensation, but for growth, there is better value elsewhere.

Bunzl comes back

HAVING spent the first part of the 1990s firmly in the basket-case category, Bunzl is starting to look remarkably like a normal company again. An 11 per cent rise in sales to pounds 809.7m, and a 26 per cent rise in underlying profits before tax to pounds 32.8m may have owed a lot to economic recovery in both the US and Europe, but they also show the benefits of the effort by Anthony Habgood, chief executive, to give the group greater focus and direction.

The move into European paper and packaging distribution, building on its strengths in the US, is undoubtedly a sensible diversification, albeit that the two businesses acquired so far are still too small to give the group critical mass. In cigarette filters, a rise in margins from 9.7 per cent to 12.5 per cent and a 31 per cent rise in sales underlines the advantage of the shift towards higher-margin, low-tax filters.

A static 1.8p dividend, on underlying earnings per share up 21 per cent at 4.7p, was less mean than it looked given the desire to rebalance the interim and final - and the comments on the likely full-year payment were optimistic enough to suggest a generous 31 per cent increase to 5.4p.

The problem is, where does it go from here? Continued economic recovery should mean profits will rise from pounds 71.5m this year to pounds 84m next - a respectable enough rate of growth, but hardly spectacular enough to justify a 10 per cent premium to the market.

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