Cray puts its skeletons on display

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When you are told in April that the pounds 32m of profits you expected are more likely to be pounds 5m, another pounds 4m shortfall is probably neither here nor there. No surprise then that worse-than-expected profits of pounds 800,000 from sales of pounds 265m pushed Cray Electronics' shares 12p higher to 73p yesterday.

The market's relief that there were no more skeletons in the cupboard was tangible following a disastrous year for the former darling of the electronics sector. Cray has been a catalogue of mismanagement, poor communications and missed targets - the combination of a pounds 27m bonus bonanza for its now discredited managment and a halved share price this year have left investors with an unusually bitter taste.

As the company warned in April, profits were all but wiped out during the year thanks to a disastrously mishandled expansion at its dominant data communications division. Lost or delayed orders, manufacturing problems, higher research and development costs and a fast-growing cost base conspired to reduce profits from pounds 25m to pounds 2m. A further pounds 9m was wiped from the group total by reorganisation costs and stock write-downs once it became obvious that things had spiralled out of control.

The extent of the damage caused by the division was underlined by the fact that it wiped out an excellent year at Cray's other two operations, a software arm and management consultancy, where profits rose sharply.

The movement in the share price yesterday suggested the market agreed with Cray's perennially optimistic management that the corner has been turned. The fact that the shares still languish at barely more than a third of their level a year ago, however, implies a continuing suspicion of a board which shows a worrying willingness to blame problems on now departed executives.

Light may be visible at the end of the tunnel but Cray is unlikely to make more than pounds 16m this year and pounds 28m next time. Four years on that will still be less than the company achieved in 1993 after a remarkable three- year turnaround.

A prospective p/e in the high teens is a demanding rating. With little support from assets or the market average yield, the shares' strength yesterday is unlikely to be maintained.


Turnover pounds P/Tax pounds EPS Dividend

Birse Group (F) 299m (351.3m) -7m (-2.7m) -3.6p (-2.7p) - (-)

BWD Securities (I) 6.9m (8.7m) 1m (2.25m) 3.5p (7.7p) 1.7p (1.7p)

Bulmer (HP) (F) 247.1m (254.6m) 25m (21.5m) 29.9p (26.34p) 7.75p (6.55p)

Cardiff Property (I) 606,000 (368,000) 131,000 (98,000) 3.1p (3.6p) 0.85p (0.85p)

Colorvision (F) 72.5m (67.1m) 1.1m (203,000) 3.3p (0.2p) 1p (-)

Cook (DC) Holdings (F) 159.3m (136.1m) 4.1m (2.2m) 6.83p (3.6p) 1.05p (0.55p)

Cray Electronics (F) 264.8m (271.7m) 800,000 (26.2m) 0.3p (8.6p) 1.5p (1.25p)

Inspirations (I) 67.8m (23.9m) -3.6m (-970,000) -8.52p (-2.75p) 0.7p (0.56p)

Savills (F) 35.2m (31.9m) 3.5m (3.2m) 5.6p (6.2p) 1.75p (1.5p)

Scott Pickfords (F) 8.4m (4.8m) 583,000 (498,000) 4.62p (5.25p) 0.9p (0.9p)

Stanley Leisure Org (F) 293.15m (265.15m) 169m (12.4m) 21.2p (18p) 4.15p (3.25p)

(Q) - Quarterly (F) - Final (I) - Interim