The Investment Column: LucasVarity steps up a gear
Friday 13 June 1997
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.
- 1 What happens to your body when you give up sugar?
- 2 Tourist films plane's descent just metres above packed Caribbean beach
- 3 World Book Day: Boy 'excluded' from school after dressing up as Fifty Shades' Christian Grey
- 4 Have sex with your iPad thanks to the new sex toy no-one asked for
- 5 GamerGate: developer Tim Schafer provokes rage with joke about online gaming activists at industry awards
Harrison Ford plane crash: Actor will make full recovery thanks to 'beautifully executed' landing
Tourist films plane's descent just metres above packed Caribbean beach
Oxford whistleblower's attempt to protect young victim of a sadistic gang went unheeded
How Homer Simpson discovered the Higgs boson over a decade before scientists
The 'sex selfie stick' lets you FaceTime the inside of a vagina
Durham Free School: 'Creationism taught at' free school facing closure
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
End of the licence fee: BBC to back radical overhaul of how it is funded
Ex-head of MI6: 'We shouldn't kid ourselves that Russia is on a path to democracy'
Most people think legal tax avoidance is just as wrong as illegal tax evasion, poll suggests
Nigel Farage promises Ukip will not 'stigmatise' would-be migrants – and says he wants 'everyone to speak the same language'
iJobs Money & Business
£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£8 per hour: Recruitment Genius: This Pension Specialist was established early...
£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...