Tomkins slims down to shape up

Wellington is cheap way in to Lloyd's; Good occupancy rates boost Slough Estates

Little by little Tomkins is clawing its way back. The old days of the sprawling conglomerate are gone. There are no buns or guns now, just a business trying to be an automotive specialist.

This is a tough market, and yesterday's half-year results showed the pain of a business reliant on car manufacturers and the US economy. Operating profits for the six months to June were down to £136m from £159m the year before. However, there was a £16.5m hit to profits from currency fluctuations.

Jim Nicol, the American chief executive, talks about honing the company's "lean manufacturing" process, which involves reduced floorspace, using technology more efficiently and making staff cuts. Savings have totalled £11m in the first half and are on track to hit £20m in the full year, ahead of the £18m expected. Savings of £50m are forecast for 2004.

He also talks a great deal about increasing sales in the so-called "aftermarket". This is sales of things like windscreen wipers to distributors rather than to manufacturers.

Another plan is to reduce the exposure to the US, which currently accounts for around two-thirds of sales. The idea is to increase scale in Asia, with the business already opening an extra plant in China.

Most of the non-core businesses have been sold but some anomalies remain, such as a business that makes baths and taps. Definitely for the chop is the materials handling division that installs conveyors systems. Offers have been received but have so far been rejected.

Other bolt-on acquisitions are planned, though none are imminent. The biggest recent deal was the £154m purchase of car-parts maker Stackpole.

Tomkins shares have had a good year, outperforming the FTSE100 index by about 25 per cent so far. The stock - 261.25 yesterday - trades on a forward P/E of 14. The company looks to be on a more stable footing, but with little upturn evident in the company's major markets there is no reason to buy now. Hold.

Wellington is cheap way in to Lloyd's

In common with most Lloyd's of London insurers, Wellington Underwriting is having a good year. Lloyd's insurers have been able to retain the high premiums in many lines of business which were kick-started in the wake of the 11 September attacks in 2001.

At the same time, they have had few claims on their policies because of the low number of natural disasters and other catastrophes in the past year.

Wellington yesterday reported pre-tax profits of £23.3m in the six months to 30 June, up from just £3.7m in the same period last year. The company's combined ratio of premiums to claims fell from 106 per cent to 92 per cent. The ratio needs to be below 100 per cent to signify profitability.

Wellington last year restructured its business, stripping its volatile reinsurance arm out of its Lloyd's business and creating a separate vehicle, Aspen Re. The timing was fortunate, as reinsurance has been a particularly profitable sector, and Aspen Re contributed £9.2m to Wellington's profits.

Wellington's core Lloyd's business, which includes aviation, property and employment liability cover, and its US arm also performed strongly. The company reassured the City that as and when premiums deteriorate it will reduce capacity rather than take on less profitable business.

Wellington's shares have been on a roller coaster ride this year, yesterday dipping slightly 2p to 91.5p. With a forward price/earnings ratio of 9 the company is at the inexpensive end of the Lloyd's companies. Buy.

Good occupancy rates boost Slough Estates

There have been a lot of bullish noises about the property market in the past week or so from the likes of Brixton and Hammerson.

Slough Estates, which specialises in industrial property was slightly less bullish yesterday. Ian Coull, chief executive, said that Slough had not yet seen any recovery in rents and that there was still an imbalance between supply and demand.

This pushed the shares down yesterday but the company did point to good occupancy rates and low gearing as reasons why it is poised to take advantage of any upturn.

Yesterday's half-year figures showed a 6 per cent fall in profits to £71.8m. On the positive side 53 per cent of Slough's core rental income is on long leases of 10 years plus. The occupancy rate of 90.3 per cent is actually slightly higher than a year ago and the development programme is 77 per cent pre-let.

Slough only has a modest development pipeline at the moment but claims that its low gearing will enable it to act quickly when fortunes definitely turn.

Encouragingly, the board has hiked the dividend by 6.4 per cent, which should give shareholders grounds for optimism.

Net assets per share have slipped 1 per cent to 514p. That compares with yesterday's closing price of 369p.

That looks a big discount and the stock appears a decent hold.