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
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Sport
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins win the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
News
news
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor