Burmah's well-oiled gains

Burmah has had to battle with the bears for as long as anyone can remember. Lubricants are mature, they say, which will put the lid on profits; the chemicals business is too cyclical and was bought at the wrong time; and petrol retailing is on a hiding to nothing competing with the hypermarkets' discounts.

All true to an extent, but, as yesterday's 20 per cent rise in underlying profits showed, Burmah is doing something right.

Shareholders certainly have little to complain about with the shares, up 1p to 874p yesterday, trading at twice their level of three years ago.

After an exceptional profit on the sale of a business in Singapore, pre- tax profits jumped from £191.9m to £243.5m. Earnings per share, even stripping out the exceptional profit, were 31 per cent higher at 69.4p. The 32.5p dividend rose nearly a fifth.

The strength of the core lubricants business was underlined by last year's rise in sales from £1.63bn to £1.76bn despite a pretty much stagnant market. Profits were ahead by an even more impressive margin from £154m to £181m.

Castrol is a well-oiled marketing machine and its presence in the exciting growth markets of India and Thailand, both larger now than the UK, and Vietnam, which soon will be, augurs well for margins.

Returns are always a lot fatter for oil companies in the new markets of the east than the competitive, mature western markets.

The cycle also seems to have turned finally for the old Foseco chemicals businesses, acquired in 1990 to much gnashing of teeth. The return on sales and investment is still far from acceptable but a rise from profits of £36.6m to £48.9m after three years of flat returns confirms the business's promise.

What is less clear is Burmah's strategy regarding its liquid gas transport business, its petrol retailing arm and its remaining oil exploration interests, although they are so small in group terms that lower profits from all three are not too much of a concern.

Of more interest to investors is the prospect of earnings growth of over 10 per cent a year for the next five years, according to one analyst, and similar rises in the dividend.

On the basis of a forecast pre-tax profit of £124.4m this year and £139.8m next time, the shares stand on a prospective p/e of 13 falling to 12. Given the steady nature of Burmah's earnings, its strong balance sheet and good cash flow, that is not demanding.

Morgan Crucible

finds its focus

Morgan Crucible has taken to heart criticism of its previous acquisition- led strategy, which led to a string of share issues in the 1980s and left the ceramics group saddled with debts in the early 1990s.

The £57.5m proceeds of the disposal of the Holt Lloyd car care business in August transformed the balance sheet - halving gearing to 36 per cent at the year-end in January - and left Morgan a more focused group.

Ironically, the fruits of the original strategy, to build up world leadership in areas like carbon brushes for electric motors and crucibles for metal smelting, are now starting to show through. Pre-tax profits up from £65.7m to £72.6m in the year to 4 January showed growth in all areas, although the profit from the Holt Lloyd sale of £2.9m and a £1.6m cut in the interest bill helped.

The 13p bound in the shares to 330p yesterday had more to do with the prospects. Boosted by accelerating world economic recovery, the outlook, with orders up 10 per cent, now looks better than it has since the last boom.

Thermal ceramics, the heart of the original crucibles business, raised operating profits from £22.4m to £25.1m last year and the view is good. Price rises are sticking and margins, just below 10 per cent last year, are already through 12 per cent this year.

Carbon, up from £17.3m to £19.5m in 1994, is also riding on the back of firming prices, plus the benefits of past rationalisation. Margins have broken through 13 per cent and Morgan is expanding capacity.

Speciality materials, now shorn of most of Holt Lloyd, are currently basking in similar margins to carbon, leaving technical ceramics the one black spot, after sales were hit by low US defence and aerospace demand. Mr Farmer believes the recent move into semiconductors will offset that.

Nearly half the Holt Lloyd proceeds were spent on three bolt-on acquisitions last month, with the rest likely to be used by the year-end. Profits of around £82m this year put the shares on a prospective p/e ratio of 14. With the 15 per cent margin target now clearly in sight, they are reasonable value, backed by a 5 per cent yield.

Highland spirits fail to excite

Shares in Highland Distilleries, best-known for its Famous Grouse whisky, were caught squarely in the sights of the City's 12 bores yesterday as the company disappointed analysts with a flat 1 per cent rise in interim profits to £23.7m. The price fell 26p to 357p.

Pricing pressures, which have caused havoc throughout the industry, have finally come home to roost. Below- inflation rises in the UK of around 2 per cent have eroded margins, and the problem has been exacerbated because Highland only exports 40 per cent of production against an industry average of 85 per cent.

The results to 28 February were artificially bolstered by customers stocking up ahead of the Budget tax increase on 1 January. As a result, the underlying growth in UK volumes was probably nearer to 3 or 4 per cent than the reported 6 per cent.

Highland is trying to push through price increases in the UK of 3.5 per cent, but it is not clear that they will stick, with Famous Grouse also coming under pressure from United Distillers' smart re-branding of Bell's as an 8-year old, and sales of fillings for blended whisky also under pressure. Analysts responded by downgrading forecasts to £45m, up 5 per cent after last time's 10 per cent rise.

The prospective p/e is 16, a 20 per cent plus premium to Guinness, owner of United Distillers. That looks even more unjustified given a yield of only 2.75 per cent, assuming the 8 per cent increase in the interim dividend to 1.9p is applied to the final payment.

News
people
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Sport
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
Sport
Esteban Cambiasso makes it 3-3
premier league
PROMOTED VIDEO
Sport
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
News
people'I hated him during those times'
News
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
News
i100
News
Dame Vivienne Westwood has been raging pretty much all of her life
peopleMemoir extracts show iconic designer 'felt pressured' into going out with Sex Pistols manager
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
fashionAlexander Fury's Spring/Summer 2015 London Fashion Week roundup
Arts and Entertainment
Lauryn Hill performing at the O2 Brixton Academy last night
musicSinger was more than 90 minutes late on stage in Brixton show
News
i100
News
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
News
people''Women's rights is too often synonymous with man-hating'
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam