The Investment Column : New head boosts Sidlaw

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The Independent Online
Shares in Sidlaw, the packaging and oil services group, bounced 12p to 108p yesterday on news that the company has appointed a new chief executive. John Durston will replace Digby Morrow who was ousted in May following the company's disastrous plunge into the red.

Mr Durston joins from Valpack, a packaging industry body, but was previously at Lawson Mardon, a privately owned packaging group. With 30 years in the industry he is clearly experienced but he remains something of a dark horse in the City, mainly because he has never been a director of a public company.

The company has been in a terrible bind since it spent pounds 79m on Courtaulds' flexible packaging business three years ago. Having been criticised for over-paying, the company was hit by soaring raw material prices. It also chased volume, neglecting margins.

Two rights issues followed, one at 275p and another at 180p, and shareholders who took up their rights at those prices are no doubt feeling aggrieved. It was problems in packaging, including costs associated with the closure of a factory, that forced Sidlaw into a pounds 4m loss at the half-year stage.

A trading update accompanied yesterday's chief executive appointment and it did contain some good news. The group was profitable in the three months to June with the upturn largely coming from the oil services division which is performing well. Trading at the packaging division remains patchy.

The challenge for Mr Durston is to create more shareholder value in a packaging market that is over-crowded. The oil services division may be sold off which would reduce gearing. It is a highly regarded business though some analysts question whether it is capable of dramatic growth.

Panmure Gordon puts the break-up value of the company at not much more than 100-110p per share. A takeover is possible but packaging companies would probably prefer to see capacity dropping out of the market rather than paying for it themselves.

Analysts are expecting pre-exceptional profits of around pounds 1.1-pounds 1.2m this year. But the shares have lost more than two-thirds of their value in the past two years and it looks like a long slog back.