Investment: First to feel the emerging pinch

SEVERFIELD-REEVES has been a cracking performer over the last couple of years, but a tightening in the construction sector suggests the party might be over.

The engineering group specialises in providing steel structures for new buildings. It was at the forefront of the economic upturn, but will likely feel a slump early on.

Profits rocketed from pounds 2.5m in 1995 to pounds 9.2m last year. In four years, Severfield's market capitalisation has risen from pounds 9m to pounds 117m.

There was little sign of any slowdown in yesterday's interim results, with pre-tax profits rising 32 per cent to pounds 5.1m in the six months to June.

Order books are in excess of pounds 50m and the company still has pounds 10m in the bank despite spending pounds 21m over the last five years on capital expenditure.

There is little exposure to the Far East and one of the few blackspots - the Manabo chain mail gloves business - is on the mend. It has new management and should break even next year.

Severfield-Reeve is still firing on all cylinders but apprehension is growing inside the company as it sees the construction sector becoming increasingly competitive.

Peter Levine, the chairman, admits the "general economic outlook remains uncertain." Analysts are pencilling in pre-tax profits of pounds 10m this year and pounds 8.5m next.

With the shares down 30p at 320p, this leaves the company on a forward multiple of 10. That is low for a little dynamo like this but fair given the slowdown ahead. Hold.