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Sindall marries into success

DYNAMIC individuals can transform sleepy companies and hugely enrich their shareholders. One company that certainly needed an injection of dynamism was the regional construction group, William Sindall.

Its shares had boomed in the 1980s but seemed to turn into perpetual loss machines in the 1990s. Relief came last year when the business was used by London-based refurbishment specialist Morgan Lovell and Overbury (MLO) as a vehicle to gain a stock market quotation.

In a classic reverse takeover, William Sindall bought MLO for pounds 13.5m, with MLO's 39-year-old co-founder, John Morgan, becoming chairman and chief executive. The company is now called Morgan Sindall. Part of the reasoning for the deal was to combine MLO's cash, profits and management with William Sindall's property assets, quote and tax losses. Over the past four years, William Sindall piled up nearly pounds 14m of losses, a significant figure for a group capitalised at about pounds 23m at the latest 75p. It should mean many years of low tax bills, unless Mr Morgan really works miracles.

Although times are hard, the recent record of MLO is one of growth. Full-year profits to March 1993 were pounds 640,000, rising to pounds l.28m the following year.

The private company then changed its year end to the calendar year, with profits reaching pounds l.27m for the nine months to end December 1994, followed by pounds l.36m for the first half of 1995. The group typically works for large blue-chip customers such as ED & F Man, Bank of America, Standard Life and Thorn EMI. Service and reliability have become key elements in the business, with strong relationships developing with clients.

Margins are hardly fat in a highly competitive industry, but Mr Morgan says that in recent years the way of doing business has been reinvented and that 70 per cent or more of turnover in any year comes from clients and architects with whom the group has worked in the past.

Unlike London-based MLO, William Sindall's business consisted of three regional construction companies serving Cambridge, Oxford and Banbury, and Fareham, near Southampton It has cut costs and stopped taking on unprofitable business. It is now shrinking but losing less money.

In the first six months to June 1995, regional contracting made losses of pounds 347,000 on turnover of pounds 19.7m, against a full-year 1994 loss of pounds 3.9m on turnover of pounds 52.4m. The other attraction of Sindall was a property portfolio that generated rental income of pounds 719,000 in the first half. The strategy now is to improve and gradually sell off the properties. In the short term, the plan is to sell non-income-producing property assets.

A measure of the progress is that profits for the first half of 1995 reached pounds 1.26m on turn-over of pounds 78m. The deal to combine the two companies took place in October last year, so there are no real com-parisons. The turnaround from losses has enabled the group to pay the outstanding arrears on the preference dividend and pay an ordinary dividend of 0.85p.

Full-year profits are expected to reach pounds 2.5m to pounds 2.75m on turnover of pounds 150m. Margins are low in the construction industry, but these figures overstate the case because of the losses still being made by William Sindall. Even on these numbers, the price-earnings ratio drops into single figures, helped by the expected low tax charge.

It is possible to do the sums to suggest that pre-tax profits for 1996 could be heading towards pounds 4m. Equally there should be corporate activity. Mr Morgan is keen to do deals, arguing that the tough climate creates opportunity and also makes it easier for stronger, better-funded, businesses to grow market share.

The new team is still a largely unknown quantity to investors and the risk is com- pounded by the company's market capitalisation, which is well ahead of asset backing. But the team will be eager to use its quote to enrich itself and its fellow shareholders.