Family success for Yule Catto: The Investment Column

Who says family-dominated companies can't be dynamic? Shares in Yule Catto, the chemicals group which still boasts two members of the founding Catto family on its board, have outperformed the rest of the sector by close to 50 per cent since 1992. The family presence has not prevented earnings growing in 15 of the past 16 years, and last year proved no exception, albeit that profits came in slightly below what have become high expectations, leaving the shares 13p off at 354.5p yesterday.

The pre-tax figure to December, up a tenth at pounds 36.5m, had a fair wind from external factors last year, while underlying growth was perhaps a mite disappointing. The soaring price of raw materials which was such a feature of 1995 started to subside by the end of that year and by early 1996 costs were back to previous levels.

But in a difficult and cyclical sector, Yule has done well with targeted expansion in genuine niche areas and growing markets. It can claim to be number one or number two in the UK in a number of unromantic but important businesses, ranging from PVA emulsions for the paint and adhesives industry to single dome rooflights for buildings. It also has a useful 20 per cent of its business in the Far East, where it has been notching up growth rates in double figures, well over double typical levels in its northern European heartland.

So even with margins of 11.5 per cent in the chemicals operation and 7.5 per cent in building products, there should still be scope to improve.

The real challenge for Yule is what to do with its financial strength. With gearing of just 17.5 per cent and a pounds 25m to pounds 30m capital expenditure programme behind it, the group is looking for acquisitions, but not finding much of value.

Profits of pounds 40.5m this year would put the shares on a forward multiple of 14. One to tuck away, but with the Cattos and Kuala Lumpur Kepong of Malaysia sitting on half the shares, the market is tight.

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