THE INVESTMENT COLUMN : Buy-back to offset Reuter's pounding Job takes on role as Reuters's comforter
Thursday 24 July 1997
Pre-tax profits for the six months to June were down 3 per cent to pounds 333m, and the pound - which yesterday reached an eight-year high against the mark - was fairly and squarely blamed. Although the company wouldn't put a figure on the damage done by sterling, it said profits were up 12 per cent at a comparable exchange rate, which in effect means the strong pound took a pounds 50m bite out of Reuter's profits.
Reuters can do little except sit it out and hope for better times. Shareholders may be well-advised to do likewise, especially since yesterday's announcement of a pounds 200m share buy-back over the next 12 months. Rob Rowley, finance director, says Reuters has pounds 1.1bn in cash he does not want to accumulate further.
A plan last year to give investors pounds 613m via a special dividend formula was scrapped after the Government shelved related tax benefits. Mr Rowley would not be drawn on whether further cash will be returned to shareholders after this year.
Buy-back or no, there are tough times ahead for Reuters, with the prospect of a slug of additional expenditure over the next few years to combat the threat of the millennium computer time bomb. The company isn't giving estimates for the cost of the problem yet, which could cause a global computer meltdown if software systems fail to recognise the date at the beginning of the year 2000. Mr Rowley does promise more detailed explanations about the scale of the threat at a seminar for shareholders later this year, though. In the meantime, a "millennium compliance programme" has been set up.
Leaving aside millennium and currency gloom, Reuters is still a market leader, and is continuing to enhance its existing product range. The 3,000 series, for example , combining up-to-the minute price information with historical data on shares, bonds and the foreign exchange, has sold well since launch last year, and further developments to the product are being applied. A domestic version has been established in the UK equities market, and a US model is planned.
If the pound continues to make life difficult for the company, there is always the possibility of lifting product prices. These have been held broadly constant for the past five years, but if currency worries persist, it may be something the company will look at.
Analysts downgraded their forecasts by about 5 per cent after yesterday's results. Current year forecasts for pre-tax profit are around pounds 680m, with about pounds 760m expected next year. That puts the shares, down 11p at 598.5p, on a forward p/e of 21. Worth holding.
Clark looks to regain sparkle
The stock market in its present mood will forgive almost any shortcoming, and cider-maker Matthew Clark and its chief executive Peter Aikens were given an easy ride yesterday.
The results of a disastrous year for the group saw profits slip by 4 per cent to pounds 40.6m, despite turnover ahead by a hefty 26 per cent to pounds 571m in the 12 months to April. The first full-year of Taunton Cider helped hide some of the problems, but a slump in market share from 41 per cent to 37 per cent tells its own story.
The figures confirmed Clark's strategic blunder. The surge in demand for alcopops might explain a standstill in the recent strong growth of demand for cider, but it cannot excuse a 13 per cent drop in the group's sales in a market where total volume fell just 3 per cent last year. The price war with its bitter rival Bulmer's provided a better excuse for a drop in margins, but there is no doubt that Matthew Clark is paying for a serious underspend on promotion at a critical time.
This year it will beef up advertising spend from pounds 2m to pounds 9m, including pounds 6m on Blackthorn cider, making it one of the UK's top half-dozen promoted drink brands, and pounds 2m on Diamond White. But the company was not pretending that things will get better quickly, business development director Peter Huntley admitted yesterday.
Much depends on the outcome of the government inquiry into taxation on high strength drinks like premium ciders, on a continuing truce in the price war and on how quickly a resumption of advertising spend leads to a fresh growth in sales. Results may not come through for one or two years yet.
Profits from non-cider brands (Strathmore mineral water, Stowells wines, Stone's Ginger Wine and Miller Draft beer) equalled cider profits last year, and the wholesale drinks business is doing well. Analysts expect them to outperform cider again in the current year and help maintain group profits at around pounds 40m.
The shares, which hit 700p a year ago, rose 4p to 246.5p yesterday, where they stand on eight times prospective earnings of 31p. Some time in the next 12 months they will be cheap, but the moment has not yet arrived.
Bullough profits by slimming down
Bullough, the mini-conglomerate, has been through the wars of late, mainly due to its troublesome former subsidiary Atal, a French furniture manufacturer. Atal was ditched in January, along with its annual losses of pounds 5m, as part of a widescale restructuring which has seen Bullough's 27 main subsidiaries slimmed down to 15 over the past nine months or so. The relief was palpable yesterday.
Results showed pre-tax profits soaring from pounds 4.23m to pounds 11.1m in the six months to April. The stock market applauded with a 2.5p rise in the shares to 95p, still a long way short of the 190p high struck in 1995.
The comparisons were muddied by the disposal programme, but a 62 per cent rise in underlying operating profits to pounds 8.81m reflects a strong performance from the retained businesses.
The main impetus came in a pounds 2m turnround from a pounds 1.6m loss at the refrigeration division. In a deceptively simple move, Bullough dumped pounds 2.8m of loss- making contracting business and replaced it with pounds 1.8m of profitable manufacturing work.
The performance at heating also demonstrated management's abilities. Divisional margins leapt from 13 to 17 per cent, boosted by bringing Trianco, acquired at the end of 1994, up to the level of existing operations. Aided also by growing demand from local authorities and the housing market, profits rose 45 per cent to pounds 3.25m.
Bullough has four growing businesses with leading or close to leading positions in many of their markets. Clearly, freed from fighting fires, the management, led by chief executive Gordon Bond, is starting to prove its ability. With gearing likely to be below 10 per cent by the year-end Bullough will be ready to hit the acquisition trail by early 1998.
Meantime, full-year profits of pounds 18.5m would put the shares on a forward multiple of 9, 1 point below their forecast yield. Good value.
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