Investment Column: German party over for RMC

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The Independent Online
WHEN the UK market took a turn for the worse the building industry moved en masse to Germany where construction output was booming as East and West were re-united. But like after any good party there is bound to be a hangover.

British construction groups have certainly been suffering with a sore head for the last few years as the volume of new building work has crumbled. A gradual upturn in the UK market, fuelled by a steady improvement in the economy, has helped ease the pain but has not been enough to offset the problems on the Continent.

Against that troubled backdrop RMC, the ready-mixed concrete and aggregates group, has done better than most. Profits rose 4 per cent to pounds 308m last year. Ignoring the effects of the strong pound, which wiped pounds 32.7m off the bottom line, earnings rose a credible 15 per cent.

RMC has proved adept at cutting costs and improving margins despite falling volumes. The improvement in the UK property and housing market has allowed it to push up building material prices.

The UK construction market should continue to tick along nicely and there are signs that the bottom of the German market is finally in sight. That said, there is no guarantee that the recovery will be more than pedestrian.

Further afield the Asian crisis has knocked building output in the region for six but expansion over there and in eastern Europe should bring long- term dividends.

With gearing at a comfortable 28 per cent, the group is also not short of a few bob to spend on acquisitions to further its overseas ambitions, especially in the US.

Merrill Lynch forecasts full-year profits of pounds 325m, putting the shares, which slipped 0.5p to 977p, on a prospective p/e ratio of 13. RMC's shares, like its main product, remain a solid hold.