Meyer heads out of the woods: The Investment Column

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The Independent Online
Meyer International is at last showing signs of emerging from the gloom in which nearly all its operations have been immersed since early last year. Last year's 15 per cent plunge in timber prices, which caused so much pain in the forest products timber importing business, seems to have bottomed out since April. Meanwhile, decisive management action is successfully starting to address the impact of a still dull housebuilding market on the main builder's merchants chain.

Yesterday's figures, however, show how serious the damage has already been. Pre-tax profits crashed from pounds 51.6m to just pounds 1.1m in the year to March. Stripping out an unexpected tax credit, exceptional costs came in at a higher than expected pounds 37.3m, and even before those charges, underlying profits from continuing operations slid 26 per cent to pounds 44.4m.

With luck, the worst should be over. The sale of timber and merchanting operations in the US and Germany will eliminate losses totalling around pounds 2m.

More importantly, the pounds 22.3m investment programme to revamp the Jewsons chain of UK merchants is showing benefits. Excluding the cost of axing 500 jobs last year, margins grew from 5 to 5.9 per cent. Next year could see the virtuous circle of Jewson winning back some of its lost market share while boosting margins to approaching the 7.5 per cent enjoyed by Travis Perkins, the industry pacesetter.

Sentiment should be improved by yesterday's appointment as chief operating officer of Alan Peterson, who joined the board a year ago from BTR's Rockware glass business. It would be better still if Meyer sold the volatile forest products business, which saw its profits slump from pounds 23.4m to pounds 13.8m last year, but John Dobby, chief executive, has firmly ruled that out.

Hopes that a rival like Wolseley or Harrisons & Crosfield might do the job for him explain the recent run-up in Meyer's shares. But a bidder might have difficulty extracting more value than existing management, while the the market could still turn down again.

Profits rising from, say, pounds 45m this year to close to pounds 60m next would put the shares, down 4p at 411p, on a forward multiple of around 14. Hold.