Smaller Companies: Raine's drought may be ending

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The Independent Online
'BY THE time I am 45 I want the shares to be standing at pounds 5,' said Peter Parkin, chief executive of Raine Industries, on his 41st birthday on 2 May 1988 when the price was 100p.

Mr Parkin is now well into his 46th year and the shares in the diversified building contractor stand at 89p. They have only been as high as 159p.

Shareholders who stumped up 95p per share in Raine's rights issue in March to help fund the purchase of Walter Lawrence must feel more wounded than most. The shares were trading at 130p in June.

To be fair to Raine, much has happened on the economic front since Mr Parkin made his birthday wish. Even since the Walter Lawrence acquisition the stock market's mood has swung from gloom to euphoria and back.

Faithful shareholders have enjoyed a good run for their money since the current management took over in early 1986, when the shares were languishing around 16p.

Raine is not due to publish annual results until October, whereupon it should lay to rest an unfounded market rumour that debts at Walter Lawrence were higher than thought. It has already halved the subsidiary's debts with the proceeds from the pounds 35m rights issue.

The results will also probably be used to confirm Raine's confidence in its ability to sweat out a further pounds 15m from Lawrence through asset sales and general cuts in expenditure.

Analysts expect Raine's profits to bottom out at about pounds 13.5m before tax for the year to 30 June, following the decline from pounds 27.3m in 1989/90 to pounds 20.3m in 1990/91, and rise to pounds 16m next year.

While the brake on the profits decline is welcome, there is still a problem on dividends. Earnings per share for 1991/92 are projected to come out at about 6.2p, leaving little room for an improvement on last year's 6p dividend payment.

And the problem, if analysts' figures are correct, deepens a year out, with earnings set to fall to 5.5p - a result of Raine's insatiable urge to issue paper to fund acquisitions.

Against that, however, can be set the group's strong balance sheet. Gearing is less than 40 per cent on shareholders' funds of pounds 120m and should fall below 30 per cent in the next year.

A useful comparision is the performance of Tarmac's share price, which was about 230p when it outbid Raine for Ruberoid in late 1988 and now lounges at 64p.

Both are likely to be late beneficiaries of recovery.

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