Invensys fails to engineer growth

Gleeson looks solid despite concrete slip; Printer St Ives looks high enough for now
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The Independent Online

Invensys is the incredible shrinking company. About the only interest in the company's business nowadays seems to be whether there's another profit warning coming and how it is doing with disposals.

Invensys is the incredible shrinking company. About the only interest in the company's business nowadays seems to be whether there's another profit warning coming and how it is doing with disposals.

A glance at the reduction in turnover over the years shows the scale of retrenchment that has been necessary at this unwieldy and unloved engineering company. After selling the businesses that are now on the block, in the latest disposal round, the group's sales will amount to about £2bn a year, from more than £9bn not so long ago.

A trading update yesterday did not amount to a fresh earnings alert, though it did not manage to deliver positive news on its main division. There was no new news on divestments. Since revealing a £2bn disposal programme earlier this year, the shares have bounced from a low of just 9.75p in April. So far two businesses have gone: software supplier Baan, a disastrous purchase, sold for $135m, and Teccor, which went for $44m.

Invensys insisted yesterday that the disposal programme is "proceeding to timetable". However, the market is getting impatient. Of the businesses for sale, the biggest are Climate Controls (sales of £738m last year), Metering Systems (£326m sales), Powerware (£519m sales) and Appliance Controls (£394m sales).

The news on trading was pretty dull, though as Investec Securities noted "the absence of catastrophes will probably be enough to support the share price". Production Management, which accounts for 75 per cent of sales of the rump Invensys and makes kit for factories, is ahead of last year in terms of revenues but operating profit for the 2003/04 year will be "at the lower end of expectation". The "growth initiatives" put in place last year are taking longer than expected to pay off. Rail Systems, which accounts for the remainder of the company, is doing well.

The shares, up 0.25p at 34p, are trading on a chunky forward multiple of 23. There is no growth story here. Avoid.

Gleeson looks solid despite concrete slip

MJ Gleeson, the construction company, has had a difficult year, thanks to a cement works that went wrong.

The company is arguing with contractors over unexpected costs on building the works in Buxton, Derbyshire. Meanwhile, it has been landed with a £5m charge, which it said caused profits to drop 37 per cent to £9.5m. But Gleeson says it will no longer take on these type of projects, which are won via a tender process. It will concentrate instead on partnership arrangements, where Gleeson gets involved at the design stage and has greater control. Margins are lower, but it is far more reliable.

And, thankfully, Gleeson is also a housebuilder, property investor and private finance company for public sector works. These give it an attractive range of incomes in what are growing markets.

The housing division, for example, has been enjoying strong demand for new homes. While commercial property developments hit a standstill this year, as customers cut back on office expansion, it is now set to pick up and Gleeson is working to improve its property portfolio, already worth nearly £60m.

At 1,280p, it is trading at around 10 times forecast earnings. Despite the Buxton setback, Gleeson's foundations are solid and there is much here to build on. Buy.

Printer St Ives looks high enough for now

The printing group St Ives, which produces corporate annual reports, books and DVD packaging, has had a tough time of it and has yet to see any real improvement.

Not that it is all bad news. Its books business remains robust thanks to hits such as the latest Harry Potter, Schott's Miscellany and The Life of Pi, with turnover up 25 per cent, while its multimedia arm, which makes CD and DVD packaging, also had a good run.

Sales at the rest of its operations, however, were down between 8 and 28 per cent, with the financials business particularly hard hit. The division printing mergers and acquisitions documents contributed about £10m of turnover compared with £50m three years ago. Taking that into account, the year to 1 August results were not that bad. Pre-exceptional, pre-tax profits rose slightly to £36.9m from £36.1m while sales were £437.2m - about £30m below the year before.

Two things need to happen before St Ives finds life easier - a pick-up in corporate activity which would see it print more M&A and listings documents, and a recovery in the advertising market. There are signs of a pick-up in the corporate market although it is still extremely early days. The advertising market remains tough.

The stock, which closed at 399p yesterday, is on a forward multiple of about 16 times, which seems high enough for now.

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