More advanced in its transformation is Powell Duffryn, which reported some of the benefits at the interim stage, the shares advancing sharply to 522p. The roots of the company lie in its ownership of a large chunk of the UK coal industry. Post-war nationalisation left it without its core business, and it was forced to concentrate on peripheral activities - such as quarrying, transport, shipping and fuel distribution - which it had developed. These did well enough in the boom of the 1980s, but a succession of mild winters, a long, deep recession and a failed bid by Hanson Trust have encouraged the company to take a hard look at its mix of businesses.
The result has been dramatic. Two significant businesses, quarrying and shipping, have been sold, and the group now has three main areas of activity. It retains fuel distribution, although the emphasis is on oil, with coal being phased out. This is a mature cash-cow business sensitive to weather conditions. Even so, it is not as dull as it sounds, given the group's strategic position in the South. It is also hoping to expand and supply larger petrol stations, at present serviced by the oil majors, which are short of cash.
The two growth areas for the future are port and shipping services and specialist engineering. Last year Powell Duffryn acquired Teesside and Hartlepool Port Authority, in a joint bid with 3i which left the group with a 50 per cent stake and operational responsibility for the country's second-busiest port. Effectively it has sold an ageing shipping fleet in which huge capital investment was required and replaced it with a transport services business, where there is an opportunity to improve profitability through a more commercial approach.
The engineering division, based at Poole in Dorset, specialises in combustion engineering which relates to increased fuel efficiency and controlling gas emissions. Helped by overseas acquisitions, the group reckons it has between 10 and 12 per cent of what, with its fashionable 'green' tag, should be a growing worldwide business. Other niche businesses doing well within the group are technologically advanced waste collection trucks made in the Netherlands and irrigation equipment sold to Saudi Arabia.
Negative influences on the company have been a series of mild winters and persistent recession in the UK, where the bulk of its profits are made.
Nevertheless, helped by sharply lower borrowings and interest charges, recently reported interim figures showed profits up 35 per cent. A comment by David Hubbard, the chairman, that he could live with lower levels of dividend cover, reassured worriers who might have thought a modestly covered dividend was at risk.
There are hopes that it might be climbing again before too long. The yield on a maintained dividend would be 5.8 per cent, with the price-earnings ratio on expected 1993 earnings probably atabout 15. Those look attractive numbers for a company that is poised for a more dynamic future.
Like Powell Duffryn, the international packaging and materials group Low & Bonar, at 315p, has had a lacklustre profits record over the past four or five years. But that looks set to change: a new management team is engaged in a large-scale rationalisation programme. The two principal factors behind the poor performance have been disastrous results in North America and a loss-making non-woven textiles business in the UK. The latter has been closed, while the US operations have been subject to aggressive cost-cutting.
In a traditional clearing of the decks, the figures for the year to 30 November 1992, just reported, showed profits plunging from pounds 24.3m to pounds 8.1m, which compares with profits of over pounds 20m as long ago as 1987. The stock market saw shares move ahead on these appalling figures - they are now close to an all-time peak. Again investors are responding to their favourite buy signal: firm management. Before exceptional restructuring costs, Low & Bonar pushed profits up from pounds 26.2m to pounds 27.1m, excellent going in a global recession.
The group, which makes more than half its profits outside the UK, is a striking beneficiary of devaluation. On forecasts of earnings per share of 20.6p, the prospective p/e is around 15, which looks undemanding, especially if, as I expect, those earnings projections prove conservative. It also looks well placed for a large acquisition shortly, which should be well-received.
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