Marley's record remains patchy; The Investment Column

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The Independent Online
Marley has spent much of the 1990s attempting to free itself from the UK building cycle and after slashing costs at the roof tiles to plastics group it has focused its attention on expanding its overseas operations, particularly the plastics business, at the expense of the still difficult home market.

Last year's pounds 88m acquisition of Syroco, the leading maker of garden furniture in the US, and a pounds 22m plastics buy in Australia and New Zealand, along with the decision in March to dump the European automotive plastics business, have radically transformed the group. The results have been obscured by a swathe of exceptional items but, even stripping out one- offs, the recent record remains patchy and profits remain well short of the pounds 70m they reached in 1988.

Yesterday's interim results to June were no exception. Reported profits of pounds 63.2m, up from pounds 24.1m, were inflated by a pounds 42.6m gain on the disposal of the automotive business. Leaving that aside, underlying profits sank to pounds 20.6m from pounds 24.1m, hit by higher interest costs and a mixed bag of results from the operating divisions.

The near-10 per cent drop in new housing starts in the home market caused most of the damage. Building products in the UK, where Marley has strong positions in roof tiles, aerated concrete blocks and paving, had a thin time, with concrete tile volumes slipping by close to 15 per cent. The problems were compounded by last year's prolonged winter, which also hit the General Shale bricks business in the US, and operating profits from the group's concrete and clay products division accordingly sank from pounds 9.6m to pounds 4.4m.

The latest clear signs of an upturn in the second-hand housing market must eventually feed through to new build. But plastics, up from pounds 14.4m to pounds 21.3m in the half year, remain the backbone of the business, with nearly all the growth there due to last year's acquisitions.

The Australian business added around pounds 500,000, while Syroco, which was only in for three months last time, raised its contribution from pounds 2m to pounds 7.6m. That is a welcome bounce-back after a dismal second-half performance, but, with sales flat, had more to do with the return of PVC prices to more reasonable levels.

An air of mystery hangs over the group's involvement in plastic chairs, which remains a commodity business, despite Syroco's 25 per cent market share. It puts a question mark over the strategy of further expanding the plastics business overseas, particularly given that current gearing of 29 per cent could give firepower of up to pounds 150m. Profits of pounds 50m in the full year would put the shares, up 2p at 125p, on a forward multiple of 12. That looks cheap against the market, but given the residual doubts is about right.