The Investment column: Low & Bonar takes the wrap

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The Independent Online
Volatile raw material prices and customer destocking have taken their toll on the grandes dames of the packaging world as a string of downbeat trading statements from Rexam, Arjo Wiggins Appleton and De La Rue attest.

Dundee-based Low & Bonar flagged sluggish results for the year to November with its own profits warning in October which wiped 15 per cent of the share price.

In the event pre-tax profits dipped fractionally from pounds 52.3m (pounds 52.4m) on sales 5 per cent lower at pounds 420m. Earnings per share advanced a mere 2 per cent though the well-covered dividend was increased by 11 per cent to 14.7p.

The main problem was in the core silage wrap business where bad weather conditions, increased competition and higher raw material prices knocked about pounds 3m off the bottom line.

To address the sales decline chief executive Jim Heilig promises a series of customer initiatives, one of which involves rolling out Kellogg's packaging operations into continental Europe.

Low & Bonar supplies all the carton board for all of Kellogg's cereal business in the UK from the US giant's Manchester base.

Mr Heilig is also keen on more acquisitions, having spent pounds 32m in the last four months alone. The balance sheet should be able to support such expansion as gearing is low at 7 per cent. But with a currency translation hit of pounds 3m expected this year - just over half of sales are overseas - Low & Bonar will have to run hard just to stand still.

Pre-tax profits of pounds 56.5m put the shares on a forward p/e ratio of 11 with the shares up 26.5p to 424.5p. That's undemanding, but the stock market can be very unforgiving about companies which lose their momentum. Best watched from the sidelines.