Hewden catches builders' cold


It really is a measure of the cold the construction industry has caught since the spring when Hewden-Stuart, its leading plant hirer and one of the sector's best run companies, starts sneezing. Yesterday's warning that the problems afflicting its customers had finally caught up with the company can hardly have come as a surprise to the City, but the dawning of reality knocked 9p off its shares, which closed at 134p.

Not that Hewden's interim figures were poor - far from it, a 22 per cent improvement in pre-tax profits to pounds 19.7m in the six months to July was an impressive performance against a backdrop of sagging demand and weakening prices. Earnings per share jumped 21 per cent to 5p, allowing the 49th successive dividend increase since flotation in 1968 - it rose 9 per cent to 0.75p.

Achieving that in the circumstances is further testimony, if any were needed, of the quality of its management and the wisdom of ploughing on with a heavy investment programme throughout the recession when others, and logic, dictated a reining in of expenditure. Hewden has spent more than pounds 200m over the past three years so it can be excused a planned easing off in the second half. The result of that continued programme has been increased market share and, more importantly, the most modern, highly specified fleet in the business.

That said, chairman Sandy Findlay was as candid as ever yesterday about prospects for the rest of the year, suggesting only that full year profits will be ahead of last year's. Following a rise in first half profits of a fifth, the implication of a very poor second half is clear and justifies the recent retreat of the shares from their all time high of 158p.

One of the reasons the City has kept faith with Hewden, long after abandoning hope with its peers, is that even when trading is tough its cash flow has been strong. During the half, it rose to pounds 42.6m, 15.4p a share and well up on a year ago.

Assuming trading continues poor though the second half, and profits only match last year's pounds 34.8m, the shares now stand on a forward price/earnings multiple of 13. Even after the recent retreat, and with little yield support, that is high enough.

Bank of Scotland causes anxiety

Bank of Scotland disappointed the market with interims at the bottom of forecasts and the shares closed 7p lower at 240p.

Attention focused on squeezed margins and rising costs. Throw in continuing uncertainty about the bank's recent acquisition of Perth-based BankWest for pounds 437m, and the anxiety was understandable.

There are certainly plenty of reasons to err on the side of caution.

Bank of Scotland announced a 23 per cent rise in pre-tax profits to pounds 261.6m for the half year to August, this against pounds 213.2m last time, but that was largely based on a fall in debt provision to pounds 65.3m from pounds 109.8m. The market had been expecting profits of up to pounds 280m.

Worryingly, operating expenses grew 16 per cent to pounds 343m from pounds 296m. Many of these costs, however, were incurred by the Bank's highly successful finance house operation NWS which is recruiting heavily.

Margins were squeezed, going down from 2.8 per cent in the second half of 1994 to 2.6 per cent for the first half of 1995.

The Bank has expanded its market share, especially in the mortgage market, but has been forced to raise much of its funds in the relatively expensive wholesale money markets. That growth in market share led to a 15 per cent improvement in assets from pounds 32bn to pounds 36.8bn.

Another disappointment was provided by the interim dividend, up 15 per cent to 2.45 pence per share - rather less than the City was hoping for. On the other hand, the payout was covered a healthy four times, more comfortable than Bank of Scotland's peers.

The bank's conservative dividend policy means it will never be much of a yield stock.

The yield stood at 2.4 per cent for this year, a stingier payout ratio than even its parsimonious rivals. On a price/earnings ratio of 9.4 this year, however, against a sector average of 10, the shares are reasonable value on earnings grounds.

Grampian is back where it belongs

Grampian Holdings sits more easily in the Diversified Industrials category where it has returned after two years masquerading as a pharmaceutical. Fortunately for shareholders, the switch is unlikely to change the company's rating.

Grampian has never been in the business of producing pharmaceuticals for people anyway. All its products are strictly for the animals, including new vaccines for cattle with coughs and diarrhoea, which should start to pay back at last next year after a seven year period which cost between pounds 5m in development costs.

For the time being the performance from pharmaceuticals remains slightly disappointing, thanks to licensing delays and now increased material costs and margin pressures in Australia.

For the next year or two, the star performer will be the transport division which is running a close second to pharmaceuticals in profit contributions this year. Grampian has a useful niche in the disposal of waste from building sites, which should escape the Chancellor's landfill taxes, but the fastest growth is in specialised warehousing where Grampian is set to expand south from its strongholds in Scotland and the north. Its 25 per cent stake in Edinburgh Woollen Mills should provide a useful source of capital if the plan to float it goes ahead next year.

The shares rose 5p to 149p yesterday, but analysts are not rushing to raise their forecasts which stay around pounds 10.7m for the full year and pounds 11.8m next for an unexciting prospective price/earnings ratio of 13.

Start your day with The Independent, sign up for daily news emails
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

Aren’t you glad you didn’t say that? The worst wince-and-look-away quotes of the year

Aren’t you glad you didn’t say that?

The worst wince-and-look-away quotes of the year
Hollande's vanity project is on a high-speed track to the middle of nowhere

Vanity project on a high-speed track to nowhere

France’s TGV network has become mired in controversy
Sports Quiz of the Year

Sports Quiz of the Year

So, how closely were you paying attention during 2014?
Alexander Armstrong on insulting Mary Berry, his love of 'Bargain Hunt', and life as a llama farmer

Alexander Armstrong on insulting Mary Berry and his love of 'Bargain Hunt'

From Armstrong and Miller to Pointless
Sanchez helps Gunners hold on after Giroud's moment of madness

Sanchez helps Gunners hold on

Olivier Giroud's moment of madness nearly costs them
A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect