Shoe market trips up Porvair

The Investment Column

Porvair, the synthetic materials manufacturer, has enjoyed a good run over the last five years, boosted by strong organic growth and acquisitions such as the pounds 38m deal to buy ceramics maker Selee last year. But, as with most companies whose shares enjoy a high rating, there was never much room for error. Hence the dramatic 17 per cent fall in the shares after yesterday's profits warning, in spite of the increase in interim profits from pounds 1.2m to pounds 1.5m in the six months to May. From their May high of 431p the shares have tumbled to 334p, down 71p yesterday.

There had been a few hints earlier in the year that the group's Porvair International subsidiary was having a tough time and it was this business that caused the warning.

The problems centre on two products. One is Permair, a leather film laminate, which has been suffering from weak demand for shoes in continental Europe and the US. The downturn knocked 15 per cent off sales in the first half.

The other is Porelle, a waterproof membrane used in bad weather clothing. A large US customer switched to a cheaper rival while orders to police and army customers in France and Belgium were postponed.

Management took action in April, cutting costs by 9 per cent. But more may need to be done if the second half does not show an improvement.

Management has been criticised for not marketing products aggressively enough. The company has also been slow to open up Far Eastern markets such as China and Indonesia, which are the world's largest shoe manufacturing regions and so an obvious target for the Permair product.

Albert E Sharp is forecasting full-year profits of pounds 6.7m which puts the shares on a forward rating of 19. Though there are still some prospects for growth the shares are not worth chasing until the picture at Porvair International becomes clearer.

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