Dismal Delta awaits new boss

The Investment Column

Dismal interims from Delta, the cables and engineering group, provided an appropriate background for chief executive Robert Easton to announce his departure after seven years at the helm. In that time, Delta's profits and earnings have halved, dividend growth has been pedestrian while the share price recently returned to 1989 levels.

Mr Easton's parting shot was to report pre-tax profits after exceptional items of pounds 11.5m in the six months to June, down from pounds 35.1m a year ago on sales 5 per cent lower at pounds 494m.

Delta was hit by huge losses run up this summer by Sumitomo, the world's largest copper trader. Two profit warnings followed and the value of Delta's 11,000 tonnes of copper held for its cablemaking activities was written down not once, but twice, by pounds 5.7m. Another pounds 5m of one-off charges were made to pay for cost-cutting in UK cable manufacture and for restructuring in circuit protection in Continental Europe.

All divisions reported lower profits, with cables slipping into a pounds 900,000 loss, against pounds 2.7m profit a year ago. Sluggish construction demand and bad weather in Continental Europe were also blamed. Despite the shortfall, dealers marked the shares 24p higher at 401.5p.

Cynics might say investors were merely looking forward to the arrival of Mr Easton's replacement, GKN's Jon Scott-Maxwell, in December. But analysts also highlighted the stronger underlying picture and the maintained 4.5p dividend as signs that the worst may be over.

While construction activity in France and Germany remains subdued, the heavy distributor de-stocking that hit engineering appears to have run its course, while falling raw material prices are helping margins to recover. The problem is that Delta remains at the mercy of highly cyclical markets. Growing the business without a visible improvement in market conditions could be like pushing water up a hill for Delta's new boss.

House broker BZW has left its pre-tax profit forecasts before exceptional unchanged at pounds 52m for this year and pounds 70m in 1997. That implies a p/e ratio of 19 falling to 14 next year. Unexciting.