Smaller companies: Cammell Laird's comeback

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The Independent Online
Amid some of the recent mega flotations, smaller deals have gone almost unnoticed, writes Richard Phillips. Last Monday, with little fanfare, shares in a name from the golden age of British industry resurfaced on the stock market, when dealings began in Cammell Laird.

The original business had gone bust in 1993, when the dry docks in Birkenhead closed with the loss of 400 jobs. The company had become a byword for industrial strife and Government intervention in the 1970s.

Despite its unpromising past, a group of determined businessmen paid VSEL, the original owner, pounds 1.9m for the remaining assets in 1995. It looks as if their gamble was well judged, as their stakes are now worth over pounds 14m.

So it's a new-look Cammell Laird - a little bit leaner, a little bit reduced from anything so grand as shipbuilding, but more important, profitable at what it does. The old shipbuilder was unable to counter ferocious foreign competition, chiefly from Asia but also heavily subsidised yards in Europe. Manufacturing is in constant decline; the only way forward, it seems, is to be fitter, leaner and nimbler than rivals.

Cammell Laird seems to fulfil these criteria. In 1996 it made a pre- tax profit of pounds 701,000 on sales of pounds 22.2m. In the year to the end of March 1997, sales had risen a touch to pounds 22.6m, but pre-tax profits had shot up to pounds 2.2m.

One problem will be the tax charge. In 1996 it was nothing, but it was 12.3 per cent in 1997 and will probably hit 24 per cent in the current year and 26 per cent in 1999. As a result, house broker Beeson Gregory sees earnings dropping slightly in 1998, to 11.2p from 11.7p, before rising to 13.3p in 1999.

Forecasts are not especially demanding: the broker expects sales to reach pounds 28m in 1998 and pounds 32.3m in 1999, to leave pre-tax profits of pounds 3m and pounds 3.8m. A notional dividend of 3.8p in 1997 will be followed by 4.4p in 1998 and 5.2p the year after.

The pounds 4m of new money raised in the placing will be used to expand the group's dry-dock facilities and its technical services arm, which specialises in marine architecture. The company wants to open docks 6 and 7 by October and December this year, with the smaller one, dock 6, used mainly for higher-margin repair work. Cammell Laird has already won repair and refitting work from the Ministry of Defence, including a deal with the Royal Fleet Auxiliary. It has also won a multi-million contract to convert a US deep- sea salvage vessel into a ship for drilling.

Contracts like this will continue to flow if the group can continue to operate efficiently and offer better value than rival yards in the Baltic and Germany.

Although individual contracts tend to be large - so that growth in sales may come in fits and starts - the shares, at 110p, up from the 100p placing price, look like a decent long-term buy.