Low and Bonar stay on high

INVESTMENT COLUMN
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The Independent Online
It has been a turbulent 12 months or so for Low & Bonar, the Scottish packaging and plastics business. First, polymer prices had their most volatile year for a couple of decades, doubling in price in six months before halving again as quickly. Then Jim Leng, the man credited with transforming the company's fortunes over the past three years was tempted by a chunky package from chemicals group Laporte.

That profits rose 19 per cent to pounds 52.4m in the 12 months to December on an underlying 7 per cent rise in sales, is testimony to Low's impressive resilience some of the most difficult trading conditions in recent memory. Eps up 20 per cent to 36.01p allowed a 15 per cent rise in the dividend to 13.2p.

New chief executive Jim Heilig, the deceptively laid-back American who has turned round the troubled American arm, puts Low's success down to keeping a close eye on the rapid and dramatic changes in the dynamics of the various markets it serves from biscuit wrappers to big "multi-wall" industrial plastic bags to highly engineered plastic components. With overall raw material costs rising by 50 per cent at one point during the year, anticipating future movements was plainly key.

He also pointed to a willingness to pass on business that offered an unsatisfactory return. Low's view is that if the product is right holding out for a sensible price will not lose customers in the long run.

Taking that hard line on pricing was proved correct by an impressive widening in trading margin. In the large European packaging business, it rose from 10.6 per cent to 11.3 per cent, while returns on sales in North America jumped to within a whisker of 10 per cent from 6.7 per cent.

So a good year in which the huge improvement in return on capital employed over the past three years was maintained, capital expenditure continued to outstrip inflation and sales-per-employees made another big jump.

On the basis of forecast profits of at least pounds 56m this time, the shares, up 9p to 523p, stand on a prospective p/e ratio of 13. Even after tripling in four years, the shares are good value.

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