Rugby held in its own territory

Rugby surprised no one with a 12 per cent underlying fall in profits from its cement and joinery businesses - the markets it operates in have been awful for more than a year now. But it did manage to raise some eyebrows with a total exceptional charge of pounds 26.9m, which blew a hole in results for the 12 months to December.

After that write-off, the pre-tax number slipped 40 per cent to pounds 45.8m (pounds 76.1m) and earnings per share fell a similar amount to 4.5p (8.1p), just about covering the year's dividend of 3.6p.

Most of the damage was caused at the famously difficult US distribution subsidiary, acquired at the wrong stage of the cycle and the cause of anguish ever since. The latest restructuring appears to be a root-and- branch revamp and an admission at last that it was a bad deal.

Elsewhere there is evidence that last year's resignation for health reasons of Rugby's longstanding chief executive, Peter Carr, is having a tonic effect on the group's strategic direction. The planned sale of the metal building products arm, which makes steel structures and reinforcing wire, is a welcome concentration on the core businesses.

Some would say it is also about time too. Rugby has been well and truly overtaken by Blue Circle in the cement business and its margins are now half those of its bigger rival. Replacing half its capacity with new plant will help, but the effect won't be felt for two or three years.The cost of that, at about pounds 100m, was outlined yesterday. It will necessitate another write-off of almost pounds 10m.

In the doors and windows business, it is also hard to see where profits are going in a market still dogged by overcapacity.

The housing market is expected to pick up in the second half of this year but the sort of anaemic recovery currently being forecast will hardly be enough to make up for the complacency which has arguably seen the company sitting for too long on its leading position in the industry.

On the basis of forecast profits of pounds 77.5m this year and pounds 87m next time, the shares, down 2p to 113p, stand on a prospective price/earnings ratio of 12.3. That is ahead of the sector, which seems demanding given the limited prospects, putting too much faith in what is a fairly attractive sales-to-price ratio, a good return on capital and strong balance sheet.

Rugby is touted as a potential bid target because it has much better cash flow than its earnings figures would suggest. That provides a floor to the shares, but with a sub-market yield (a legacy of the parsimonious Mr Carr) and no clear strategic view, they are likely to remain flat.

Sports brands lead at Pentland

Pentland has built a portfolio of some of the best-known brands in sports, including Speedo swimwear, Berghaus outdoor clothing and Ellesse shoes. That is the glamorous side of the business and it has forged ahead; there is an ugly sister too, however, and it has been letting the side down.

Pentland's other division is consumer products which includes three businesses that make electrical appliances, greeting cards and wrapping paper. Last year all three had a torrid time.

In the full year to December, pre-tax profits were flat at pounds 38m on sales 19 per cent higher at pounds 755m. While profits at the footwear, clothing and sports division jumped from pounds 14.5m to pounds 18m in the year to December, profits in consumer products slumped from pounds 9m to pounds 7.6m. Interest receivable also fell on lower cash balances of pounds 40m.

The fan heater business was hit by soaring plastic prices and while sales were up by 50 per cent, margins were squeezed. Wood Industries, an American business which supplies electrical accessories to the DIY market, has been affected by retailers running down their stocks as well as higher raw material prices. Hanson White, the greeting card and gift wrap business, was put under pressure by intense competition and higher paper prices.

Pentland is now conducting a strategic review which might see the disposal of these businesses. Some analysts expect a sale this year though as all three are profitable there is plainly no rush.

Of the sports brands, Pentland has high hopes of Speedo this year due to exposure at the Olympic games. Authentic Fitness Corporation, the Speedo licensee listed in New York, increased its contribution to Pentland's profits by 41 per cent last year to pounds 6m.

Mitre, the supplier of footballs which was acquired last year for pounds 9.5m is not expected to make a profit until 1997 but Ellesse and Berghaus increased both sales and profits.

Pentland's shares have fallen sharply from their peak of 146p last August and slipped a further 2p to 103p yesterday. With analysts forecasting profits of pounds 44m this year and a forward rating of 14, the shares look unexciting.

D&G requires a long view

After being knocked back by the negative publicity surrounding extended warranties, revenues have started growing again at Domestic & General, the specialised domestic products insurer. But the 6.8 per cent rise in profits before tax for the six months to 31 December 1995 to pounds 5.39m confirms that the heady expansion of the late 1980s and early 1990s has now steadied to a more pedestrian rate.

Turnover, which had fallen by around 5 per cent in the first six months of 1995, reacting to the criticism of extended warranties by the Office of Fair Trading, recovered to show 5 per cent growth in the latter half of last year. Net retained income, which is a key performance indicator, increased by 9.5 per cent. The dividend per share was raised to 12.25p.

The results suggest that demand for extended warranty products is more robust than the OFT or the Consumers Association would have us believe. Despite their scepticism as to the value of prolonging product insurance once the manufacturer's guarantee for a washing machine or video recorder has expired, D&G continues to have very high renewal rates among its 2.7 million customers. HSBC James Capel estimates full-year profits of pounds 11.4m, with an EPS of 111p, putting the stock at just under 15 times earnings, or a similar rating to the market as a whole.

But investors need to look well beyond the current results to form a view on D&G. The company is currently spending heavily in an attempt to replicate on the Continent, especially in Germany, its phenomenal pioneering success in the UK. Early results are moderately encouraging, but this is a green-field venture, and will take time. If five years from now the company can demonstrate significant progress in Germany, then the current pounds 16 share price looks cheap. But it is a big if and financial service concepts are often poor at crossing national boundaries. High enough.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific