Buoyant P&O delays Bovis float as building picks up

P&O yesterday denied suggestions that it would shelve the proposed flotation of its housebuilding arm Bovis, but admitted it had delayed the demerger from March until the autumn.

Lord Sterling, P&O's chairman, said holding back would allow the City to appreciate better the fast-improving fortunes at Bovis, which is starting to benefit from the recovery in the housing market.

Housebuilding was one of the best performers at P&O, where Lord Sterling appeared to have succeeded in his attempt, begun last March, to rebuild bridges with an increasingly dissatisfied investment community.

Part of that charm offensive was the flotation of Bovis. Other measures included a pounds 500m investment property sell-off and an attempt to drive the group's return on capital up to 15 per cent.

Although P&O has yet to deliver on any of those targets - it has sold a net pounds 100m of property and return on assets remained stuck at 11.3 per cent last year - the City has warmed to the group's increased focus on generating shareholder value and, from a low of 460p, the shares have recovered to yesterday's close of 634.5p, up 9p.

The rise in the shares followed better-than-expected full-year profits in 1996, with a 4 per cent rise at the pre-tax line to pounds 332.8m comparing with analysts' expectations of a small fall in profits. Investors shrugged off an implied warning on this year's profits, which Lord Sterling said would be hit by the costs of merging its ferry operations with Stena and its shipping activities with Royal Nedlloyd of Holland, focusing instead on the promise of strong profits growth in 1998.

The company's attempt to rebuild profits, after two years of falling returns, were hit last year by a pounds 32.5m fall in profits from ferries to pounds 41m as competition from the Channel Tunnel started to bite.

Lord Sterling said he was confident that the proposed merger of P&O's ferry operation with that of rival Stena would get the go-ahead once the on-going MMC inquiry into the deal was completed.

The profits decline from ferries was offset by a big jump in profits from cruises.

Investment Column, page 26