NFC price drops at doubts over earnings

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CITY worries over the quality of NFC's earnings sent the international transport group's shares 18p lower to 266p yesterday. The price fall came in spite of the company's success in meeting its forecasts, with pre-tax profits just pounds 2.75m lower at pounds 91m for the year to 3 October.

Stockbroking analysts were concerned that the profits were boosted by a pounds 14.5m pension fund credit, but the company pointed out that this surplus was forecast to continue at that level.

'The analysts didn't seem to pick up on the longevity of this situation,' Trevor Laman, finance director, said. 'If the workforce continues to run at present levels the credits will endure for between 12 and 16 years.'

But Clive Anderson, transport analyst at Smith New Court, said the market felt that the credits diluted perceived quality of earnings. He added that there was also some concern over the jump in the company's debt-to-equity ratio from 29 per cent to 55 per cent.

'People were questioning NFC's price/earnings premium to the transport sector, but the converse is that in other ways, quality of earnings was better.

'The company has taken substantial restructuring costs in its transport division and less of its profits are coming from the volatile property sector,' he said.

'It might also be argued that this is a good time in the economic cycle - with low interest rates - for gearing to be higher. They have used the money to make reasonable acquisitions.'

NFC's overall turnover increased 4 per cent to pounds 1.7bn and operating profit was 1 per cent higher at pounds 103m. Jack Mather, chief executive, said the 23 per cent downturn in profits from property masked a robust performance in the group's core divisions - transport, home services and logistics.

NFC spent pounds 75m on 16 acquisitions in eight countries during the year, and Mr Mather said that the programme was virtually complete.

James Watson, NFC's chairman, said: 'The immediate economic future is uncertain but we have the financial strength, the right mix of business and the management ability to develop the business.'

Earnings per share were 13.1p against 13.7p last year. NFC's employees and their families own 45 per cent of the company.