Smaller Companies: Cannon results expected to be right on the ball

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The Independent Online
AFTER two brushes with collapse - in 1974, and again in 1992 - Cannon Street Investments should provide further evidence that it is well on the mend next week.

Cannon is a completely different animal today from the former agglomeration of 60 subsidiaries involved in 14 different types of business.

David Smith, who became chief executive a year ago, has proved no slouch at making decisions.

Quick-fire disposals have left the group focusing on electronics distribution.

The balance sheet, once loaded with more than pounds 100m of debts, should show borrowings down at pounds 20m, set against shareholders' funds of pounds 23m.

Cannon has also rediscovered the art of how to sell itself. 'The catalogue of electronics products, which used to look like a drab edition of the Isle of Skye telephone directory, is now glossy and professional,' said Robert Gibson, analyst at Robert Fleming.

He expects Cannon to announce profits, before exceptional credits, of about pounds 4m for 1993.

A result like that on Thursday would show that interest payments, which once more than soaked up profits, are more than twice covered.

Taxable profits will include more than pounds 4m of gains from disposals, most notably the sale of Cannon Materials Handling, a forklift truck leasing business.

The number of subsidiaries in Cannon had been whittled down to 24 when it reported interim figures in September, and investors will next week be looking for more news on the divestment front.

Cannon, however, is no longer in the position of having to sell to survive.

'There are a couple of marginal ones which may or may not be making money. But we are encouraged by there being no obvious businesses which are problems,' added Mr Gibson.

Long-suffering investors have witnessed a remarkable bounce in the shares over the past year from 7.5p to 34.5p, but it seems that they will have to wait some time yet for a dividend cheque.

Strides have been made towards enabling shareholders to benefit financially from the company's recovery through the elimination of losses on reserves, but a year's back-payment on preference dividends still has to be sorted out.

The outlook for appreciation in the share value, however, seems good.

There is a belief in the City that the shares could move up towards 50p as the year progresses, particularly if more disposals are made.

Analysts have already pencilled in a big improvement in profits for 1994, which lends weight to some arguments for a further uplift in the share price.

Pre-exceptional earnings per share for 1993 of 1.5p translate to a fancy price/earnings ratio of 23.

On profit predictions of pounds 7.8m for 1994 it comes down to about nine - hardly demanding.