Dull Hepworth shines through

Investment Column

Hepworth's interims yesterday brought the building sector's results season to a close - more with a whimper than a bang, it has to be said. After the flood of disappointments and warnings in the last month or so, the market was relieved to see the boiler and pipes group producing flat profits, but the 23p rise in the share price to 277p could not disguise the fact that these were dull figures from a directionless group.

Though boring, Hepworth is well-run, produces enough cash to fund its dividend payments and has a couple of fine boiler businesses shining out from the uninspiring rest of the group - refractories, chemicals, ladders and greenhouses. This shone through in half-time pre-tax profits yesterday, up 5 per cent to pounds 37.5m, struck from sales of 3377.1m (pounds 338.6m).

Building products, including plastic and clay plumbing and drainage, countered the slow UK housing market with strong exports and pushed through some price rises. Gas boilers maintained profits despite falling demand and pressure on prices. Saunier Duval saw margins slip in mixed European markets for boilers but made gains in market share.

The small refractories business was the star performer, with profits almost doubling to pounds 3.7m from pounds 2.1m as sales moved ahead strongly on the back of demand from aluminium, glass and steel-making industries. Minerals and chemicals had a good half.

After a 3 per cent earnings rise per share to 10.5p, the interim dividend was unchanged at 5.5p. Gearing is immaterial at 9 per cent and interest well covered 35 times by operating profits.

But Hepworth desperately needs a decent sized acquisition to give its earnings some momentum again. Only that would reverse the derating that the market has inflicted on the shares over the last 18 months during which the shares have all but halved from a high of 501p.

Since the Saunier Duval acquisition in 1990 the company has done little to suggest that its management has any strategic ambition and it will struggle to shake off its worthy tag.

Until it does so, the shares are likely to tread water. On the basis of forecast pre-tax profits of pounds 73m this year and pounds 82m next time, they trade on a prospective p/e of 12, a small discount to the rest of the market.

The only interest is provided by a forward yield of 6.7 per cent, but with no growth pencilled in for the payout, even that is unlikely to do more than underpin the current price.

Tourist boost to Hamleys profits

Hamleys, owner of the famous London toy shop, has done well to insulate itself from the chill winds blowing through the rest of the retail sector. Admittedly, the near quintupling in profits to pounds 5.65m over the last three years was in part due to the obvious strengths of the brand name. But management led by Howard Dyer, formerly of Williams Holdings, have also used the name sensibly to target the shopper willing to spend a bit more for service, principally tourists.

So while others moaned about the hot summer, Hamleys has cashed in on the back of a 10 per cent rise in overseas visitors this year.

Pre-tax profits jumped from pounds 676,000 to pounds 1.68m in the six months to the end of July on sales 24 per cent ahead at pounds 11m. The half-way dividend is hoisted 35 per cent to 2.7p.

The principal beneficiary has been the flagship Regent Street store, where high operational gearing meant that a 15 per cent rise in sales translated into doubled profits on exactly the same selling space. With a further 1,000 square feet of capacity due in the New Year and only four out of 10 visitors to the shop converted into sales, further growth seems assured.

Hamleys' expansion plans beyond London are now looking much more focused on its target audience than attempts in the 1980s to open stores for all and sundry on the high street.

Satellite operations at Heathrow airport and Covent Garden have seen sales grow by 11 and 22 per cent respectively and margins are probably close to the 15 per cent being achieved at Regent Street, while two operations started this year at the Channel Tunnel terminal at Folkestone and Schiphol airport in Amsterdam are already making money.

Losses in the House of Toys concessions within House of Fraser stores were budgeted and the offshoot is on target to increase its contribution in the full year.

The second half has got off to a good start, with trading running ahead of 1994. As ever, Christmas remains crucial to the full year, but profits should top pounds 6m, putting the shares at 287p, up 6p, on a forward multiple of 15.

They have come a long way since last year's placing at 185p, but still look reasonable value.


Turnover pounds Pre-tax pounds EPS Dividend

BCE Holdings (F) 9.15m (3.73m) 0.97m (-0.80m) 0.51p (-2.84p) 0.09p (nil)

Bruntcliffe Aggregates (I) 11.8m (9.4m) 0.86m (0.79m) 1p (0.9p) 0.4p (0.4p)

CLS Holdings (I) 12.9m (10.4m) 4m (8.37m) 4p (3.3p) 2.1p (0.4p)

French Connection (I) 33.3m (34.7m) 1.3m (3.1m) 3.5p (8.1p) nil (nil)

Frogmore Estates (F) 72.4m (66.9m) 14.9m (16.5m) 22.4p (29.8p) 18p (17p)

Gieves Group (I) 9.43m (9.13m) 2.27m (0.52m) 8.9p (1.5p) 0.75p (0.5p)

Hamleys (I) 11.0m (8.91m) 1.68m (0.68m) 5.1p (2.7p) 2.7p (2p)

Hepworth (I) 377m (339m) 37.5m (35.6m) 10.5p (10.2p) 5.5p (5.5p)

Huntleigh Tech (I) 47.5m (35.4m) 7.17m (5.26m) 16.82p (12.18p) 3p (2.75p)

Ruberoid (I) 107m (108m) 2.7m (2.2m) 3.6p (3.2p) 1.9p (1.8p)

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

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