Pilkington makes breakthrough

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The Independent Online
A WEIGHTY piece of research from stockbroker Societe Generale Strauss Turnbull states that Pilkington, the glass manufacturer, has changed dramatically over the past year, and the shares are undervalued. A sleeping giant, it says, is finally awakening.

One of the significant changes it highlights is Pilkington's move into developing markets. It is constructing or acquiring plants in Brazil, Argentina, Chile, Poland and China, which will leave it with over a quarter of its production coming from emerging markets.

Analyst Howard Proctor also highlights the retirement of chairman Sir Anthony Pilkington, bringing to an end five generations of family involvement. His replacement, Nigel Rudd, will bring a further dynamism to play. The shares, at 193p, are attractive for long-term investors, while there is scope for continuing dividend growth.

INVESTORS lucky enough to buy into Zotefoams when it floated at 145p in March have had an extraordinary ride. The former BP subsidiary, bought out from its parent three years ago, now stands at 263p.

With that sort of gain, the results announced by the company last week are probably not enough to ensure continuing institutional support. The foam-maker made pre-tax profits of pounds 3.5m, up from pounds 2.39m. Despite this healthy growth, a current price/earnings ratio of 26 suggests the shares are ripe for profit-taking. Sell now, while good profits are still to be had.

RESULTS from Royal Insurance (348p) shone in comparison with mixed figures from its peers, after it announced record interim profits - pre-tax up 26 per cent to pounds 241m - suggesting every chance of a swollen final dividend. According to calculations by broker BZW, a projected net asset value of 388p by the year-end means the shares are still cheap on this basis alone. On a strong US earnings bounce, it says, they look even cheaper. Buy.

BESPAK, a maker of medical devices such as drug inhalers and tools for keyhole surgery, has attracted positive notices for its new dry-powder inhaler, developed especially for Glaxo. The gizmo allows a more accurate dosage of particular drugs to be delivered to the patient, in a less wasteful fashion than with previous inhalers.

While the company has been busy gearing up on this product, it should also be helped by an improvement in the US healthcare market, as it comes to terms with President Clinton's reforms, and stocks are wound down.

Disappointing results from the US business should be behind management by now, and the shares, at 333p, have good recovery potential. Buy.

NEXT WEEK it is the turn of the ageing lion Hanson to report its third- quarter figures. They will give the markets important clues as to whether the company is back on song, or if it remains less than the sum of its parts. The remedy for companies like this in the old days was to bid for them and break them up, selling off overvalued assets, and keeping those with strong cashflows.

NatWest Securities forecasts pre-tax profits of pounds 325m for the third quarter, against pounds 282m last year. The market expects little to change the shares' underperformance over the past year or so, however. The bid for Eastern makes sound financial sense, especially for the tax breaks, but is otherwise only more of the same: safe earnings, with some potential of reasonable growth. There is little resemblance to the classic Hanson break-up play of old. Buy for the safe income.

PROFITS warnings are nearly always gruesome affairs, for shareholders and management. Rexam's announcement last week that it was suffering from customer destocking was no exception. Management credibility took a further knock, and although Rexam has issued unduly pessimistic forecasts in the past, this is no consolation for investors, who saw the value of their holdings plummet by almost 20 per cent.

The company meanwhile is taking some long-overdue action to improve customer liaison, and will have to run down its own stocks in turn. The question is, do the shares have scope for some recovery, or do they remain a sell? There will almost certainly be a speculative bounce in the next few weeks, but there is little to suggest the risks have been fully accounted for at 425p. Avoid.