New team settles in at Laporte

The Investment Column
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The Independent Online
Nine months into the job, Laporte's new chief executive, Jim Leng, has barely had time to pause for breath. Yesterday's announcement of the pounds 29m disposal of the chemicals company's Australasian operations was just the latest move in a radical restructuring that has seen a complete overhaul of the executive board and 10 per cent of the group put up for sale.

Mr Leng came in for something of a pasting when nine weeks into the job he outlined a dramatic restructuring and issued a profits warning but he was right not to hang around. Selling the 11 disparate businesses that made up Laporte's operations down under makes abundant sense given its pretty pathetic return on sales and capital employed.

During the second half of last year operating profit was a paltry pounds 400,000 from sales of pounds 35m, little more than a 1 per cent margin. The businesses were decidedly not paying their way in terms of management time and Laporte is better off without them.

For the next few weeks anyway management is going to be fully occupied in getting its feet under the table. A new finance director starts work on Monday as do two other divisional heads. Mr Leng maintains that the operating businesses have been moving ahead nicely while the top table was reshuffled but, in reality, Laporte will welcome a bit more stability.

Britain's fourth biggest chemicals company, Laporte ought to be nicely placed with good positions in growing markets. In electronic chemicals it supplies semiconductor manufacturers with the chemicals needed to prepare silicon wafers and it makes the imaging masks on which circuitry is drawn. With chips in more and more domestic gadgetry, demand could more than double in the next few years according to industry analysts.

Laporte's other subcontracting businesses supply some pretty attractive markets. The speciality organic chemicals division supplies pharmaceutical firms with the building blocks, called intermediates, for drugs. That market is constantly changing, driven by new illnesses and treatments, and is growing fast as drug companies sub-contract more and more of their work.

The challenge for Mr Leng is to extract a better return from that trading environment and to limit the damage in Laporte's more mature, duller areas such as building and construction chemicals, glue and sealants, where demand is still sluggish. In the first five years of the 1990s earnings growth was far too patchy for a company with Laporte's opportunities.

Analysts are forecasting profits of about pounds 120m this year, before a goodwill write-off on yesterday's sale, for eps of about 44p and a prospective p/e of 15. Until the earnings growth record becomes more sustained and at a higher rate, that is high enough.

Harvey Nichols

looks pricey

Harvey Nichols, the upmarket Knightsbridge department store that came to the market in April, will to have to work hard to live up to its fancy valuation. So far the company's brief spell as a public company has proved rewarding for only a select few investors.

Priced at 270p, the shares shot to 334p on their first day of dealings. All very nice for City institutions who had subscribed to the placing.

Not so good for ordinary members of the public who could not get their hands on the shares until trading had started. At yesterday's 337p, up 6p on the day, Joe Public's shares have gone more or less nowhere.

Whether they have the legs to travel much further depends very much on whether management can continue to deliver the impressive results served up so far.Yesterday's figures were certainly Knightsbridge class with pre-tax profits in the year to March up from pounds 3.9m to pounds 9.1m.

Like-for-like sales improved by a heady 14 per cent, driven largely by the in-store concessions where sales were up by almost 25 per cent. Margins have been maintained and the lid has been kept on costs.

The margin performance is particular impressive, given the high level of lower-margin concession sales.

These account for 43 per cent of fashion retail space. Though the margins are lower than in own bought merchandise, concessions offer a level of security for the host company as the tenants have to guarantee a minimum level of sales.

Sales from food retailing and hospitality have also increased by 19 per cent on the previous years with food margins boosted by a concentration on own brands.

Current trading is encouraging with sales in the 11th week of the year up by a thumping 20 per cent.

This year will see a full contribution from the new menswear floor which added 3,800 square feet and the Foundation restaurant and bar. The new Leeds store will open in October and the first stand-alone restaurant at the Oxo Tower in London in September. Two other London sites have been identified for restaurants though the company added no details yesterday.

Morgan Stanley is forecasting profits of pounds 21.2m this year which puts the shares on a premium rating of 24. Expensive.

Hogg bullish

on year ahead

The jump in full-year profits from Hogg Robinson, the travel to financial services company, up 51 per cent to a record pounds 26.3m, were nicely ahead of expectations of about pounds 25m and the shares rose 15p rise to 264p.

That improvement capped a good year during which the shares have pulled away from the low of 145p reached in the spring of 1995. Even after their good run, however, the improvement in trading after 1993's stagnant result means the shares still have plenty of attractions.

The increase in profits from last year's pounds 17.4m received a significant boost from the recent pounds 58m acquisition of the Bennett Travel Group, which chipped in pounds 7.75m in its first nine months of ownership. But there were better results also from most of its business sectors, with the exception of transport, where returns remained relatively flat at pounds 5.64m.

Brian Perry chairman, pointed to what remain difficult trading conditions in core businesses of transport, business travel and financial services, but he struck a bullish note on prospects for the current year.

Hogg provides a business travel service for 40 of the top 100 companies, and recorded a 22 per cent rise in profits from that arm, a fifth of sales but almost twice as much in profit terms. Mr Perry sees the already significant rise in business travel in the past year increasing even more sharply.

Profits from the financial services arm jumped 37 per cent, boosted by the growth of its independent financial advice subsidiary and the continued expansion of the employee benefits business. Transport was hit by a decline in exports from Germany to Britain.

On the basis of forecasts of more than pounds 31m in the year to March, the shares stand on a prospective priceearnings ratio of 12, which compares favourably with an estimated growth rate in the mid-teens. Good value.

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