One share making up for some quiet times is Johnston Group which, in three days last week, rose from 198p to 217p, fell back to 202p and then rallied to 211p, probably on little trading. Shares now stand at 222p. Family interests control 54 per cent with another 20 per cent-plus in institutional hands. Even now the group is only capitalised at about pounds 22m, making the shares prone to violent movements. But they also look very cheap, with turnover last year of more than pounds 130m and asset backing approaching 300p a share.
The reason for the low valuation is that for three years in a row the group has reported losses and still has problems with its construction and property divisions. But the company is past the worst. This year it is expected to produce profits of pounds 3.5m, and a more detailed analysis of the figures suggests that profits could move sharply higher in subsequent years.
The group has three divisions - construction; engineering, where the group is number one or two in the world in the supply of road-sweeping equipment; and construction materials, which includes quarries and concrete pipes in the Telford area and a successful business supplying glass-reinforced plastic pipes to the water industry under a process licensed from a Swiss company.
The startling fact is that without the losses on construction, the US road-sweeping business and the holding costs on unlet properties, the group would be making profits of nearly pounds 8m a year. Throw in some growth, and pounds 10m a year looks achievable on a two-year to three-year view - which would drop the p/e to about three.
An analyst who follows the company is looking, more cautiously, for profits of pounds 3.5m this year, largely based on an absence of further provisions on property, and provisions and trading losses from an already-sold hydraulics business. The following year, profits of around pounds 5m are expected. That still leaves the shares looking very cheap in a company in which there have been some important management changes and hard lessons learned.
Much more advanced in the process of changing its spots is the mini-conglomerate turned sharply focused transport company, Goode Durrant. A measure of the almost fairytale quality of the turnaround here is that after reporting a loss of pounds 15.4m for the year to 30 April 1994, it has just issued a 'warning' that current-year profits are expected to be 'comfortably ahead of current market expectations'.
An analyst who follows the stock, Bob Carpenter at stockbroker Kleinwort Benson, promptly raised his full-year forecast from pounds 7.5m to pounds 9m, excluding exceptionals, for a prospective p/e of around 16 for the year just ended.
The jewel in Goode Durrant's crown driving this remarkable performance is a van- hire business, Northgate, now the largest of its type in the UK. It has traded much more strongly than expected in what is normally the seasonally quieter second half of the company's financial year. Utilisation rates, prices, demand and residual values of second-hand vehicles have all been good. So good that I would not be surprised if the Kleinwort Benson forecast is still too low. There is also another smaller business that is doing well. It rents converted shipping containers for storage on building sites and is moving from losses to profits.
Virtually all Goode Durrant's other activities have either been sold (such as motor distribution and leasing) or are up for sale (such as its housebuilding subsidiary, which has recently returned to modest profitability). The plan is to concentrate on building up the van rental side, which has already grown from a fleet of 1,000 vehicles when Northgate was acquired in 1987 to 7,000 and is still climbing.
Apart from being the largest operator in this market in the UK, with plans to expand southwards from strongholds in the North and the Midlands, the van rental business has the attraction of being hugely cash-generative and flexible. The size of the fleet is driven by utilisation. If demand falls, vans are sold and not replaced. If demand is strong, as now, the fleet is expanded. That takes money - which is why the group is selling all its less exciting businesses to finance growth of the star activity.
Prospects look excellent for further growth in the current year, with the chief executive, Michael Waring, arguing that most of its van customers prefer renting to owning for flexibility and to release capital for their core activities. A final bonus for the group, which has a strong balance sheet by the standards of the typically heavily borrowed hire industry, is that a hostile South African holder of a 25 per cent stake placed the shares with some lucky institutions at 159p in January against a current price of 197p. The shares look outstanding value.
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