LIG bounces back with a dividend

INVESTMENT COLUMN
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The Independent Online
Things look a great deal brighter at London International than they did a year ago when only a one-for-one rescue rights issue could patch the gaping hole left by the condom maker's decision to pull out of its haemorrhaging photo-processing business.

On the basis of yesterday's full-year figures it has been a useful first year in what the company always knew would be at least a three-year convalescence.

Pre-tax profits of pounds 15.2m, compared with last year's kitchen-sink loss of pounds 175.1m, were at the top end of expectations.

As forecast, the company returned to the dividend list with a 1p dividend, which was well covered by earnings per share of 4p (90.6p loss).

Most impressive was LIG's cash performance, which showed good work on reducing working capital and cut borrowings by up to pounds 20m more than analysts had expected.

Clearly, most of the growth over the next couple of years will come from restructuring. There is plenty still to do, reducing overheads, moving production to cheaper countries and pushing through higher-margin products such as Durex's new polyurethane condom, Avanti.

Thereafter, the challenge will be to push the top line. The company says it can expand sales by more than 10 per cent a year, which would be an impressive performance against the background of a condom market growing at no more than 2 or 3 per cent a year.

With new markets, such as the Far East, growing at 29 per cent last year, and market share being pinched elsewhere, however, that target looks achievable. Underlying growth in surgical and household gloves is also pretty encouraging.

Almost doubled pre-tax profits this year of pounds 28.5m, on the basis of NatWest's forecast, put the shares, up 4.5p to 111.5p, on a prospective price-earnings ratio of 18.

For most companies that would be stretching it, but with plenty of recovery still to come, and a brand that will always attract predators, the shares are worth holding.

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