Tomkins' time is still to come

JD Sports; London Scottish
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The Independent Online

Tomkins, the engineering group sullied by the corporate excesses of its former chief executive, has successfully managed to rehabilitate itself.

Tomkins, the engineering group sullied by the corporate excesses of its former chief executive, has successfully managed to rehabilitate itself.

Greg Hutchings has long since been ousted and the company came to an £850,000 financial settlement with him last month. David Newlands was brought in as executive chairman at the end of 1999 to clean things up and he appears to have succeeded. Delivering some respectable interim figures yesterday, he said that the appointment of a new chief executive was imminent, though he won't name the new guy until next month.

Divisions including the bakery and firearms interests have been sold. It is no longer the "buns-to-guns" conglomerate of old. Aside from its well-known cars parts business, Tomkins' other products include parts for air conditioning systems and garden sprinklers. A big plus in the auto business is that 45 per cent of sales come from replacements of its products, such as wipers, so Tomkins does not have to solely rely on original equipment sales.

The company's main problem is that over 70 per cent of sales come from the US, an economy in the doldrums. That is why its shares lurched down in September.

For the six months to 31 October, underlying profit was £142.8m, from £155.5m previously. Turnover from continuing businesses was up £45.7m at £1.72bn. Given the markets in which it operates, it was a strong performance. There were some upgrades yesterday, with Schroder Salomon Smith Barney taking its full-year profit forecast from £151m to £263m. The company also gets credit in the City for cost-cutting. Yesterday it revealed 1,000 redundancies, mostly in the US.

The questions to be posed about Tomkins are on the state of its markets and when a recovery will come. The company said that conditions remained "difficult" and it could see no signs of a turnaround.

Tomkins is touted as a good US recovery play by some analysts but now is not the time to buy. The shares have already bounced back strongly from the September low and there is no evidence of a bounce-back in its markets. Trading on a forward price-earnings multiple of about 11, the shares, up 0.25p yesterday at 210p, are a hold.

JD Sports

With the word "bumper" now firmly fixed in front of the phrase "Christmas trading", John David Sports felt it had to qualify its festive sales figures yesterday, which came in a meagre 3 per cent higher than last year, on a like for like basis.

The finance director, Malcolm Blackhurst, was on hand with previous years' figures at his fingertips. Over Christmas 2000, year on year growth had been running at 6.8 per cent, with 17.5 per cent the year before. Given such brilliant performances, Christmas 2001 was always going to look pale in comparison. That 3 per cent was a creditable performance.

JD Sports is different from its rival JJB Sports because it doesn't sell sports equipment. It remains a straight down the line sports fashion retailer, with a highly respected management. It squeezed a modest increase in margins by resisting the pressure to start its sale before Christmas.

The group has 161 stores across the country, and has been opening more large out of town stores in the past year. The stated medium-term aim is to reach 300 stores and the balance sheet is robust enough to ensure that is achievable.

The big threat must be that consumer spending will start to slide just as margin improvements dry up. Mr Blackhurst reckons the store chain will remain relatively insulated from a slowdown – somehow the kids always seem to get their Nike trainers – but JD shares could be in for some turbulence.

Luckily, they are not expensive. Down 12p to 293.5p, they trade on 10 times Seymour Pierce's forecast of current year earnings. Hold.

London Scottish

London Scottish Bank is based neither in London nor Scotland, but in Manchester. It is not a bank in the usual sense, either, but a door-to-door lender to borrowers turned away by the high street giants. As the British consumer loads up with debt, London Scottish is unsurprisingly doing very nicely.

Profits for the year to 31 October were up 14 per cent to £15.3m, pushing the shares up 2p to 127p. Income in the main consumer credit business is growing faster than administration costs and bad debt provisions, reflecting improving margins and credit quality.

Any downswing in lending, if unemployment jumps this year, should in part be compensated by more business for the insurance and debt collection businesses that make up the other half of the group. But these are facing margin pressures and other costs, including IT spending, are increasing. Profit forecasts have been pulled back and, until the economic uncertainty clears, the shares should be avoided.