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Investment: Poor time for Pilkington

WHEN Paolo Scaroni took over as chief executive of Pilkington 17 months ago, the glassmaker's shares jumped to almost 130p. Yesterday they closed unchanged at 60.5p, in spite of the company issuing a reassuring trading update ahead of its interim results due in a month.

To be fair, this underperformance can hardly be blamed on Mr Scaroni. His plan to drag Pilkington's productivity up to the level of its main competitors by cutting 7,500 workers remains on track and should be complete by March.

One-off factors such as the strike at General Motors, which cost Pilkington pounds 7m, and interest-rate hikes in Brazil, which hurt car-buying, could hardly have been foreseen.

In profit terms, things should get better. Analysts cut their profit forecasts yesterday to about pounds 135m - in line with last year's figures. For the following year - the first with the full benefit of the cost- cutting - they expect anything from pounds 180m to pounds 200m, which puts the shares on a forward earnings multiple of just six.

However, Pilkington is operating in an intensely competitive industry which is prone to cyclical swings.

The danger is that at least some of the benefits of the latest round of cost-cutting will simply evaporate in lower prices.

Add in worries about Pilkington's debt load, which will be swelled by the redundancies, and the shares - the 8 per cent dividend yield aside - have little to commend them.

Mr Scaroni is doing as well as anyone could be expected to do under the circumstances, but for the time being investors are best off avoiding this industry altogether.