Meanwhile, there are plenty of investment stories around - a combination of management changes and an improving economic climate is helping companies to transform their performances. Below I look at four that are at varying stages of the shift from bust to boom. All look to have scope for substantial share-price appreciation over the next year or two.
The John Tams chairman, Gerald Tams - like Greg Hutchings of Tomkins - was disappointed in the stock market's reaction to his results. Although not good, they had been flagged by a profits warning late last year, and a price plunge from 83p to 74p after 72p looks harsh, given clear evidence that the current year is going to bring sharp improvement.
The group makes earthenware and china pottery. Its problems last year came from recession affecting all sides of the business and a continuing battle to improve the profitability of the fine china side, which has struggled almost since it was acquired. Helped by the recent appointment of a new finance director, the group has taken a hard look at costs and strategy. Demand is picking up strongly for earthenware, particularly the mugs that the group produces for customers including Nestle.
The expectation is that the group will soon be operating at 100 per cent of capacity, having taken its smaller overflow production unit out of mothballs.
At the same time, prospects for the loss-making Royal Grafton fine china business have been improved by winning a four-year contract to supply china for the Garden Shop at Buckingham Palace. This contract should help bring the Grafton subsidiary into profit, and suggests that City forecasts of 1994-95 profits rising from pounds 1.5m to pounds 2.1m are too low. On a prospective price-earnings ratio approaching 12, the shares are a buy.
Further advanced on the recovery path are shares in the Wensum Corporation at 65p. The group has two distinct businesses. It designs and manufactures corporate clothing for such customers as British Airways and W H Smith - upmarket kit for staff in direct contact with customers. It also makes lightweight suits and jackets for retailers including Marks and Spencer, Austin Reed and Aquascutum. In the year to end-January 1993, both divisions had a tough year and pounds 6.6m of turnover produced a pounds 441,000 pre-tax loss after interest costs of pounds 130,000. The shares plunged below 30p for a market valuation of around pounds 2m.
Recovery began last year when the corporate clothing side won the contract to supply uniforms for Eurotunnel. Turnover in this division doubled, and operating profits rose nearly 10-fold to pounds 344,000. Further progress is expected in the current year from a string of smaller contracts.
But the best news for this year is that both divisions should be firing well. Last year, the clothing side made pre-tax profits of pounds 71,000 on turnover of pounds 5.4m. In the past, it has managed operating margins of 8 per cent and is thought capable of that sort of performance in the future. On expectations of pre- tax profits reaching pounds 750,000 this year and pounds 1m next, the prospective p/e is around 13 and falling below 10. That looks cheap, but the shares are tightly held.
A company that has been both transformed and renamed is Graystone, chaired since late 1992 by Dick Richardson. He came in to rescue a tiny company, then known as Ptarmigan, with a share price of 2p and a mishmash of unrelated activities. With institutional backing, he has made acquisitions and sales to create a group of focused and profitable engineering firms, with a 1994 turnover expected to exceed pounds 55m.
Profits are forecast to reach pounds 3.5m for the year just ended in June 1994, go on to pounds 5.8m in 1994-95 and reach pounds 6.4m the following year. That would drop the p/e at 12.5p to just over eight, suggesting the potential to double the share price over 18 months.
Last of my four is Plasmec at 113p. The conclusion of a large contract and exceptional restructuring costs produced a small loss for last year. The group returned to profit in the second half, albeit too small to make the whole year profitable. But 1994 has begun much more strongly with an order book of pounds 2.7m at December 1993 against pounds 1.6m a year earlier, excluding the large completed contract. Third-party forecasts suggest pre-tax profits of pounds 500,000 this year and pounds 750,000 next, taking earnings per share to 11.1p, for a p/e one year out of just over 10. The shares look an attractive speculative buy.
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