Although BPB's portfolio includes some high-margin plasterboard products such as soundproof walls for multiplex cinemas, most sales come from ordinary plasterboard used in houses and offices. The only means of differentiation here is pricing.
BPB has half the European market; the rest belongs to French group Lafarge and German rival Kanauf. The ability of these three to exploit their economies of scale led the European Commission to launch a probe in November into possible anticompetitive practices. The suspicion is that they can cut prices if new entrants try to break into the market. Prices have remained firm despite the investigation, hence BPB's rising share price.
Yesterday's annual results showed BPB's operations recovering strongly in the second half of the year, a trend BPB said is continuing. Plasterboard volumes rose by 4 per cent, and by 6 per cent including acquisitions. Cost-cutting offset static prices, so the division's operating profits rose by 5 per cent.
BPB's paperboard business lifted underlying profits by 50 per cent after restructuring, though it is still just 6 per cent of profits. Major problems were confined to Germany and central Europe, where profits fell by 50 per cent. However, chief executive David Leonard says his markets are stronger than he expected half a year ago.
Mr Leonard steps down at the end of the year, and he will pass his twilight months continuing the cost-cutting. Longer term, he sees the group exploiting its distribution network to sell other products such as insulation, flooring and ceiling tiles.
JP Morgan forecasts pre-tax profits of pounds 197m and earnings per share of 28p this year, rising to 230m and 33p in 2001, putting the shares on a forward p/e of just 10 in 2001. While a recovery in Germany may boost November's interim results, until then the shares could be dented by unpredictable EC announcements. In the near term, the shares are risky.