Light at end of tunnel for P&O

The Investment Column

The 9p rise in P&O's share price yesterday to 492p represented a welcome respite after almost three years of dramatic underperformance by the container shipping to ferries, cruises and property conglomerate.

The bounce will, however, have capped a bad 48 hours for Lord Sterling, the group's chairman. He won't have relished the implied confirmation of a Sunday newspaper survey of fund managers suggesting that most of the large institutions were after his head.

The poor performance of P&O in recent years partly reflected the market's disenchantment with conglomerates generally. But there are a number of company-specific problems that P&O is struggling to overcome.

Put together in a haphazard way over many years, P&O is a ragbag of unrelated interests, a fact tacitly acknowledged in March when Lord Sterling pre- empted calls for a break-up by promising a pounds 1bn disposal and flotation programme to create a more focused group with fewer, larger divisions.

The programme, which included the flotation of Bovis Homes, and the sale of pounds 500m of investment properties would, Lord Sterling hoped, return the group to operating margins of 15 per cent, a level P&O had not achieved in more than a decade.

It would also generate the cash to continue paying a 30.5p dividend, the level of the payout for years now and patently unsustainably high in the absence of the cash provided by property sales in the boom years of the 1970s and 1980s. Inflation has always bailed P&O out; now the company was showing signs of learning to live in a less favourable environment.

That was the theory. Since then the shares have continued to underperform as the market focused on the fact that, while P&O's businesses are not intrinsically badly run, they are operating in difficult markets. Commercial property is in the doldrums, container shipping is fiercely competitive and generates a return on assets little better than a building society account, and the cross-Channel ferry market has been clobbered by the Channel Tunnel.

As a result, analysts have steadily edged forecasts back and last year's fall in profits from pounds 350m to pounds 320m, itself a collapse from 1993's pounds 521m, is unlikely to be rectified this year. Profits of perhaps pounds 315m are the consensus now.

There is some light at the end of the tunnel, however, and if, as expected, the Government clears the way this week for some sort of co-operation between P&O and Stena on the hard-hit cross-Channel routes then prospects could brighten considerably for one of the group's largest and most troubled divisions. The other good news is thatP&O's dividend looks reasonably safe. At almost 8 per cent, the gross income on that payout looks increasingly attractive at more than twice the rate of inflation and, if nothing else, it puts a solid floor under the share price. Lord Sterling may still have an uphill struggle to rebuild bridges with the City, but the shares look good value.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Day In a Page

Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links
Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing