Redland still has bounce

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The Independent Online
There is a price at which anything is for sale and, having slumped from an already sharply discounted flotation price of 65p in June 1994 to just 20p, Ennemix, despite its well-documented problems, has probably reached it.

That said, it is hard to see why Redland, one of the giants of the building materials sector, is bothering with a ready-mixed concrete and aggregates group worth less than pounds 4m. With Ennemix warning shareholders to sit on their hands it is not immediately apparent that the deal is worth the management time.

In the three years before it came to the market, Ennemix lost more than pounds 8m.

Despite that it persuaded shareholders to stump up pounds 4.5m when floated, most of which has been poured down the drain. The problems since then have been legion.

One manager successfully claimed constructive dismissal, other directors took pay cuts, the dividend was passed and Nottinghamshire County Council blocked a proposal to extend one of the company's key quarries. The shares slipped to half Ennemix's net asset value (hence their attraction to Redland) before bouncing 13p to 33p after Redland picked up 29.9 per cent of the equity.

The deal is irrelevant to Redland in investment terms, which will come as little relief to anyone who followed the New Year tips of our sister Sunday paper a year ago. Redland shares have been atrocious performers partly thanks to dismal trading in the company's main markets but mainly because of the decision to cut the dividend early in the year.

The decline until last month was relentless but, just pennies from the low reached by the shares in 1992, the constuction sector's bleakest hour, they suddenly turned the corner and from a low of 326p have bounced to 384p, up 2p yesterday. At that level they trade on a prospective price/earnings ratio of only about 10 next year, a sizeable discount to the rest of the market, which is not too unreasonable given Redland's exposure to the fast declining west German housing market.

With a yield of 5.5 per cent, however, and signs of an upturn in housing at home, the bounce has a way still to go.

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