Sighs of relief at Bullough: The Investment Column

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The Independent Online
Michael Pickard knows a thing or two about turning a sow's ear into a silk purse - he is chairman of the London Docklands Development Corporation - so it is perhaps not surprising he has done such an apparently sound job rescuing Bullough since he took the chair seven months ago. Nonetheless, the change in fortunes at the engineering, heating and office furniture company, is an impressive recovery story, worthy of the 18.5p rise in the share price yesterday to 95p.

The collective sigh of relief from investors reflected Bullough's unexpected success in drawing a line under its disastrous investment in the French office furniture market. A heavy exposure to the public sector there means the company has fallen foul of Paris's desire to meet the Maastricht criteria for inclusion in the single currency. Government spending has stopped.

The cost of pulling the plug on Atal has been considerable and a pounds 21m exceptional write-off put a heavy dent in full-year profits to October, already badly scarred by French trading losses and a dip into the red by the struggling UK refrigeration division. Pre-exceptional profits of pounds 7.99m compared with pounds 14.5m in 1995 and earnings per share tumbled from 6.6p to 3.4p before an exceptional 22.5p-a-share charge.

The dramatic rise in the shares yesterday, however, reflected the market's relief that all the bad news would appear to be out in the open and measurable. It had been feared that Bullough would struggle on with Atal, incurring further open-ended losses. The management's confidence that it was all water under the bridge was reflected in the fact that the final dividend, after a one-third cut at the half-way stage, was maintained for a 5.47p total.

Since Mr Pickard came on board, nine businesses have been sold which accounted for a measly pounds 1m of operating profit from more than pounds 50m of sales. UK office furniture and heating are performing well and the balance sheet is in much better order with borrowings reduced to only 14 per cent of shareholders' funds. On the basis of UBS's forecast of pounds 17m profit this year, the shares trade on a prospective p/e ratio of about 11. Until credibility is restored a discount to the market is to be expected. But it should narrow and the shares are reasonable value.