Shares: What went down comes up: Three companies fighting back from the ravages of recession offer investors a lucrative ride

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The Independent Online
AN EXCITING feature of the bull phase in the stock market since September 1992 has been the speed at which companies have recovered from recession. Share prices have amazed observers by coming out of free- fall and then rising as dramatically as they had been plunging. Equally stunning has been the pace of profits recovery underpinning the soaring share prices.

An exciting example is Sheriff Holdings, the plant hire group based in Nottingham. Floated in 1988, its shares peaked at 180p in the boom conditions of 1989, then began a steady decline to a low point of 50p in 1992, as profits fell from pounds 1.05m to pounds 310,000 for the year to 30 September 1991. Then sterling left the ERM, Norman Lamont began singing in the bath, and somebody lit the blue touch paper on Sheriff's share price. The shares have climbed with barely a break to the current 341p, and buyers are still chasing an almost non-existent supply.

Part of the reason is that when conditions were at their blackest in the autumn of 1992, the Dunn family, which founded the group, raised a vital chunk of new money from the Causeway Venture Capital group. The latter now owns 30 per cent of Sheriff, acquired for just 60p a share. In return, the group was able to embark on a buying spree when plant and equipment were being almost given away. It is now in the happy position of having roughly trebled in size just in time to reap maximum benefits from a gathering boom.

Furthermore, hire rates are likely to rise. This could have an explosive impact on profitability, as revenue powers ahead while most costs remain steady.

Analysts who follow the company expect profits to double in 1993/94 to pounds 3.3m, having doubled each year since the 1991 low point. Next year, a figure around pounds 4m has been pencilled in, but this is likely to be at least pounds 1m too low.

Long term, too, the company has been a great performer, with turnover for the current year likely to be around 20 times 1984's level, and profits climbing proportionately. The shares look excellent value at 341p on a p/e heading towards 10 on likely 1994/95 earnings.

A less clear-cut but potentially exciting investment is Arthur Shaw, the door and window fittings manufacturer, at 108p. The price was languishing at around 50p between 1991 and 1993 as the group was plagued by recession, losses in parts of its business, and fierce in-fighting between factions trying to gain control of the company.

These struggles have been resolved, with an earlier management team regaining undisputed control. What is more, the group is now coming out of recession in dynamic style. The latest figures for the year to 31 March show turnover climbing by 20 per cent to pounds 20.2m, with last year's losses turning into profits of pounds 893,000 before exceptional items. Earnings per share were 4.67p for a historic p/e of 22.9.

That may not look particularly cheap, but the current year is said to have begun well, and the group has done a sale-and- leaseback deal on part of its main factory to raise approximately pounds 500,000 in cash against a market value of pounds 9.5m. My guess is that profits could move up towards pounds 2m over the next two or three years, as margins return to earlier levels.

Last but not least is the potential offered by a dramatic profits recovery from Ransomes, the beleaguered lawnmowing equipment group. In May, I said buyers of the shares could do very well indeed. But I did not realise that the price would rocket from 24p to 62p just three months later and that they would still look well worth buying at this level.

There are still negatives. The group is still pounds 2.3m in arrears on dividends on its convertible preference shares, and debts remain at some 450 per cent of shareholders' funds.

But the new management team led by John Clements and Peter Wilson (formerly of BTR) have hit the ground running. Operating profits have more than doubled, lifting first- half pre-tax profits from pounds 1.2m to pounds 6.7m. New products are set to further boost the group's higher-margin commercial equipment business in the US, and there is a substantial property portfolio to be sold.

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