The Investment Column: P&O profits steam ahead

LORD STERLING, P&O's pugnacious chairman, has had to navigate choppy waters over the last three years. Some of the group's shareholders called for his head as dividend payouts remained at a standstill and the City moaned about the company's perceived lack of direction.

But his lordship really did have something to smile about yesterday. He unveiled a better-than-expected set of 1997 profit figures and a positive outlook for the future. Pre-tax profits rose 30 per cent to pounds 433.9m in the year to 31 December 1997 while headline profits before re-organisation costs were up 25 per cent to pounds 401.2m. There was no immediate dividend hike but there were strong hints this would happen next time.

There were strong contributions from the cruise, property and ferry divisions and P&O has embarked on a series of joint ventures to counter difficult markets. Partnerships with Stena and Shougang have helped shore up profits for ferries and bulk shipping respectively. The only disappointments were the P&O Nedlloyd joint container shipping venture and the Trans European trucking arm.

P&O is slimmer, trimmer and working hard to come up to new standards of return on capital employed (Roce), now set at 15 per cent. Over two years the group overall has raised its Roce game from 11.1 to 12.9 per cent.

The P&O Nedlloyd venture languished at 2 per cent while Trans European was also dismal. But Lord Sterling is confident his expected predecessor, Tim Harris, can rescue the former while the latter is threatened with a sell-off if it fails to improve.

P&O shares, which have outperformed the market by 9 per cent over the last three months, rose another 33p to 889p. Analysts expect 1998 profits to reach pounds 475m, putting P&O on a forward multiple of 16.8. It is not to late to climb aboard.