The Investment Column: SSL International remains a safe play

SSL INTERNATIONAL, the company behind Durex condoms, has found it hard wooing the City. In June, the shares were already 10 per cent down from the beginning of the year when Iain Cater, the chief executive, unveiled Seton Scholl's merger with London International Group, the condom maker.

Mr Cater's promise of cost savings and cross-selling benefits failed to arouse investors, who have continued to shun the shares. But while the City complains that the mergers of Seton, Scholl and LIG have created a company which defies comprehension, SSL International remains a safe play.

The cash cost of the LIG merger totalled some pounds 93m, but Mr Cater's cost- cutting plans should deliver a cash payback in three years. The merger charge, including pounds 80m for redundancies and other integration costs, contributed the bulk of a pounds 165m exceptional hit yesterday. There was more encouraging news on trading, however.

Underlying sales - stripping out estimated stocking effects - in the group's medical products business were up 13 per cent year-on-year in the first seven months.

Strong demand for surgical gloves helped; their sales are growing at 20 per cent per annum and account for 15 per cent of group turnover.

Unfortunately, SSL lacks the capacity to meet demand and new plant will not come on stream for another year. Continence care products showed double- digit growth.

Progress in consumer products was held down at 3 per cent by the deferral of a US contract for 300 million condoms for Third World distribution. That should pop up in the second half, however. Top line consumer sales also suffered when a supplier let the group down, though SSL has recovered some profits.

The outlook for group condom sales looks good. SSL penetration in the US market is now 18 per cent. Manufacturing is being streamlined and a new factory being built in Thailand, which should help tackle stiff competition in Asia.

Analysts expect full-year pre-tax profits of around pounds 117m and earnings of 45p per share, putting the shares, down 3.5p at 672.5p yesterday, on a forward price earnings ratio of 15.

While many investors continue to find SSL hard to get to grips with - it owns 400 consumer brands - yesterday's trading figures, the first to give historical pro-forma comparisons, set the stage for an strong full- year performance. The shares are good value.