The Investment Column: LucasVarity steps up a gear

Despite a good set of numbers, LucasVarity, the Anglo-American automotive engineer, wasn't giving much away to the press about its first- quarter results yesterday. While analysts got a detailed conference call on the first figures in the merged group's inaugural year, neither Victor Rice, chief executive nor Neil Arnold, finance director, were talking to journalists.

Given the level of scepticism about the takeover of Lucas by Varity last September - reinforced by a 25 per cent underperformance in the shares - some sensitivity looks justified. But a more rational explanation lies in its decision to opt for a quarterly reporting policy.

Though this quarter looked good - operating profits rose 12 per cent to pounds 86m - the second quarter of 1997, which analysts estimate will show profits of pounds 97m, will not. The reason lies in comparison with the 1996 figure of pounds 122m.

This corresponds to Lucas's old fourth quarter, which has traditionally been the subject of "window dressing" to improve the look of the figures for the year as a whole. By the same token, last year's weak third quarter at pounds 54m should generate a warm glow when LucasVarity reports much stronger 1997 third quarter numbers: analysts are looking for for an 80 per cent rise to pounds 97m.

A better indication will be given by results for the year as a whole, which Hoare Govett believes will show profits of pounds 326m, for a healthy 23 per cent gain. The group is confident it will hit its pounds 120m cost reduction target - analysts reckon the group saved pounds 5m last quarter - and reduce working capital by pounds 140m over two years. The pounds 100m disposal programme should also be complete by the year end. Margins are already responding, up 0.2 percentage points to 7.1 per cent. Acquisitions are also looking good - contributing pounds 40m to pounds 1.21bn sales, ahead 9 per cent even after a pounds 50m hit from sterling.

Against this, Lucas is battling against sterling and difficult markets. The US automotive market is flat and the French car market could crash 15 per cent this year, but the aerospace and diesel sectors are picking up. Shares in the group rose 7p to 211p. On 14 times, buy for recovery.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

A groundbreaking study of 'Britain's Atlantis' long buried at the bottom of the North Sea could revolutionise how we see our prehistoric past

Britain's Atlantis

Scientific study beneath North Sea could revolutionise how we see the past
The Queen has 'done and said nothing that anybody will remember,' says Starkey

The Queen has 'done and said nothing that anybody will remember'

David Starkey's assessment
Oliver Sacks said his life has been 'an enormous privilege and adventure'

'An enormous privilege and adventure'

Oliver Sacks writing about his life
'Gibraltar is British, and it is going to stay British forever'

'Gibraltar is British, and it is going to stay British forever'

The Rock's Chief Minister hits back at Spanish government's 'lies'
Britain is still addicted to 'dirty coal'

Britain still addicted to 'dirty' coal

Biggest energy suppliers are more dependent on fossil fuel than a decade ago
Orthorexia nervosa: How becoming obsessed with healthy eating can lead to malnutrition

Orthorexia nervosa

How becoming obsessed with healthy eating can lead to malnutrition
Lady Chatterley is not obscene, says TV director

Lady Chatterley’s Lover

Director Jed Mercurio on why DH Lawrence's novel 'is not an obscene story'
Farmers in tropical forests are training ants to kill off bigger pests

Set a pest to catch a pest

Farmers in tropical forests are training ants to kill off bigger pests
Mexico: A culture that celebrates darkness as an essential part of life

The dark side of Mexico

A culture that celebrates darkness as an essential part of life
Being sexually assaulted was not your fault, Chrissie Hynde. Don't tell other victims it was theirs

Being sexually assaulted was not your fault, Chrissie Hynde

Please don't tell other victims it was theirs
A nap a day could save your life - and here's why

A nap a day could save your life

A midday nap is 'associated with reduced blood pressure'
If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

If men are so obsessed by sex...

...why do they clam up when confronted with the grisly realities?
The comedy titans of Avalon on their attempt to save BBC3

Jon Thoday and Richard Allen-Turner

The comedy titans of Avalon on their attempt to save BBC3
The bathing machine is back... but with a difference

Rolling in the deep

The bathing machine is back but with a difference
Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

Conservatives plot a motoring revolution

Draft report reveals biggest reform to regulations since driving test introduced in 1935