Investment: Mersey Docks sails in with strong profit rise

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The Independent Online
MERSEY DOCKS, Britain's second-largest port operator, yesterday dispelled some of the gloom surrounding the sector with a strong set of results and an upbeat trading statement.

The owner of the ports of Liverpool and Sheerness, Kent, said the market fears over the impact of the economic downturn on harbour operators were unfounded. Share prices in port companies such as Mersey Docks and Associated British Ports have been under pressure as the market worried that the economic troubles would slash volumes and cripple profits.

However, Mersey Docks showed that profitability remained strong despite the slowdown. The company, which last year settled its dispute with the Liverpool dockers, posted 11 per cent growth in 1998 operating profit to pounds 53.3m. Pre-tax profit rose 37 per cent to pounds 47.6m, although the 1997 number had been hit by a pounds 10m charge to cover the striking dockers' redundancies.

The rise in profit came despite sluggish growth in sales. Turnover was up by only 6.6 per cent to pounds 179.8m as the BSE crisis caused a sharp drop in animal feed shipped. Oil revenues were hit by the refurbishment of a Shell terminal.

The finance director, Alastair Findlay, maintained that profit growth had been achieved by focusing on higher-margin products such as grains, containers and fruit. Passenger traffic registered a sharp rise thanks to the opening of a new ferry service from Liverpool to Dublin. "We have maintained volumes where it really matters," Mr Findlay said.

He added that the company was confident on the outlook as it was set to remain "relatively immune" to economic troubles in the UK and abroad. Mersey's loyal customer base and low exposure to Asia-bound goods should help the company weather the downturn.

Further growth could come from Mersey's ambitious capital expenditure programme, said chief executive Trevor Furlong. Mr Furlong, who yesterday said he would retire in 2000, to be replaced by Peter Jones, the head of the port division, said Mersey spent pounds 51m on its ports in 1998 and plans to spend a further pounds 40m this year.

Mr Furlong said the projects would help results in the second half of the year. However, shares in Mersey remained unchanged at 511p, well below their 12-month peak of 635p.

Alastair Gunn, transport analyst at Credit Lyonnais Securities, said the market should focus on Mersey's defensive qualities and discard economic fears. He said the company was a big player in a growing market with very high barriers to entry. "It is expensive to build new ports and existing players have almost a monopoly of supply. Mersey is in a very good position in the market, with two well-focused ports covering the west and east coasts."

The shares - on 12 times 1999's forecast earnings of pounds 50m - trade at a large discount and Mr Gunn is advising clients to buy. "People should focus on the value of these shares. The fact that, despite the economic downturn, they are not warning on current trading is almost equivalent to a profit upgrade."