Investment: Seton Scholl's bold step pays dividends

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The Independent Online
SETON SCHOLL Healthcare is a company on a firm footing. Five months after the merger between Scholl, the maker of the famous medical sandals, and Seton, the over-the-counter drug specialist, the group is starting to see the benefits of combining distribution and production facilities.

The restructuring has been painful, with more than 200 redundancies and the closure of offices and warehouses costing around pounds 40m in the first half, but yesterday's results proved that the tie-up made sense.

Interim profits before exceptionals rose 10 per cent to pounds 29.6m, with turnover up almost 5 per cent to pounds 158.5m. The sales and earnings momentum shows little signs of abating in the second half, thanks to the recession- resilient nature of Seton Scholl's products. When the economic going gets tough, people cut down on eating out and buying furniture, but are unlikely to stop buying corn pads or cough and cold remedies.

Seton's international exposure could cause some sterling headaches, and there's the Asian downturn, but most turnover is in the UK and Europe. Those markets are expected to grow by around 8 to 10 per cent despite the gloomy economic forecast.

In the longer term the company could suffer from European governments' desires to slash healthcare budgets, although sound management and in- fill acquisitions should provide a reasonable cushion.

Further growth should come from the injection of Seton's products into Scholl's distribution network and by the cost savings provided by the merger of the manufacturing plants.

The shares jumped over 7 per cent to 838.5p yesterday. Assuming full- year profits of pounds 56m, the shares trade on a forward multiple of around 22. This is a discount to rivals such as London International and Alliance Unichem, which is not justified by fundamentals. To catch up with its peers, Seton Scholl would need to be at around 880p. Good value.