Bottom Line: Wind set fair as P&O fulfils promise

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The Independent Online
THE CRUISE ship company P&O is finally beginning to live up to its promises. Taxable profits of pounds 122m were at the top end of expectations, a 50 per cent improvement.

Profits from the three core operations - cruises, ferries and containers - rose sharply. Further gains should be made by all three for the rest of the year, although next year will undoubtedly be affected by the Channel Tunnel - assuming that it is fully open for business.

While results from P&O's eight other divisions were mixed, there are many signs of recovery that should compensate for any hit on the Channel ferry business.

In particular, container shipments to Europe from the Far East, Australasia and the US are picking up and will benefit strongly when the German economy recovers. There is still the hope that P&O will be allowed to protect itself against the tunnel by a takeover of Stena Sealink.

Recovery in profits from the Earls Court and Olympia exhibition halls was slow although this business was late going into recession and has yet to benefit from the upturn.

The sticky areas are in housebuilding and construction, where margins are tight and recovery remains patchy. The group is on course to make pre-tax profits of about pounds 360m this year. Despite a 21p rise to 674p, the shares have upside given the undemanding price/earnings ratio of 16 and generous yield of 5.7 per cent.

Fisons offers little

STUART WALLIS may look back with nostalgia on his first 13 days as chief executive of Fisons. Getting to know the business is likely to prove easier than taking it forward from here.

The 26.7 per cent fall in pre-tax profit to pounds 30.4m, accompanied by a similar drop in earnings to 3p a share, was bad enough. More depressing, however, was the litany of warnings about extra costs, increased competition and falling margins that accompanied it.

In pharmaceuticals, US sales of the Intal asthma drug are about to face generic competition, and the need to find a CFC-free formula for its aerosols means the Japanese launch of a Tilade inhaler will be delayed for at least two years. In scientific instruments, losses are worse than expected, margins in laboratory supplies fell by a third and there is little prospect of improvement.

The result was a savage downgrading of forecasts from about pounds 85m to between pounds 50m and pounds 55m. Even after yesterday's 15p fall to 135p, that still leaves it on a generous 31 times earnings - a rating that owes far more to persistent bid hopes than to ever- more elusive recovery prospects.

In theory, this is the perfect time to bid. Sir Patrick Egan, chairman until a successor is found, has wielded the cost-cutting knife and brought in new management - albeit two years too late. The problem remains in identifying the possible bidders.

The pharmaceutical business has two niche asthma products and an unispiring pipeline.

The scientific instruments business has been exposed as a poorly-performing commodity supplier. Laboratory products is being squeezed by healthcare cost-cutting.

Hardly a tempting prospect, for investors or predators.

Check out Caradon

THE CYNICAL view of Caradon's mixed results is that last year's acquisition of Pillar came conveniently to the rescue after a slump in profits from US cheque printing compounded still sticky markets in Britain and Europe.

That is probably unfair, given the irrefutable evidence of an increase in margins from Pillar's building products operations from 5 to 8.2 per cent.

Demand for European radiators remains sluggish and price competition in the UK is affecting plumbing. The return on sales from doors and windows remains low at 2 per cent overall and regaining the lost ground in cheque prices, which have fallen 16 per cent, will be a long haul.

That said, Caradon has some excellent businesses. Margins from MK Electric reflect the brand's strength and market dominance. Despite its problems, security printing spits out cash.

Profits of pounds 200m this year and pounds 240m next put the shares on a prospective p/e of 13, against 11.7 for Blue Circle. That reflects hopes for further margin improvement, but the gap should not widen.

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