The Investment Column: Tomkins offers reassurance

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The Independent Online
Tomkins has had an extremely trying first half to 1996. Having seemingly won the long uphill struggle to convince the market of the merits of its purchase of RHM, its failure to dot the i's and cross the t's of its latest big deal, the pounds 800m acquisition of automotive products group Gates, and the market's mistrust of conglomerates in the wake of a profits warning from BTR, have conspired to clobber the shares.

Having started the year not far short of 300p, they had fallen as low as 247p by the middle of the week, when the decision was taken to try to stem the slide with a reassuring trading and dividend statement.

It appears to have done the trick - the shares bounced 8p to 255p yesterday as investors were reminded that a better-than-expected dividend rise of 15 per cent to 9.95p would represent the 13th consecutive rise in the payout of at least 15 per cent.

As far as trading is concerned there were no real surprises. Bad weather hit the important March/April lawnmower buying season in the US, but that had been expected.

Forecast profits of pounds 320m were bang in line with market expectations and confirmed that Tomkins is a long way from being one of the lumbering dinosaurs that Hanson and BTR have evolved into.

It may do itself no favours in the City by refusing to bow to the altar of focus, as Williams has done, but it can produce a fairly compelling statistical argument that its spread of activities works.

Reassured that the Gates deal is back on track, if a bit delayed, investors can re-focus on Tomkins' plentiful attractions. Unlike BTR, for example, it is still small enough to grow meaningfully, it has little exposure to the difficult markets of Europe and Australia, and a strong balance sheet. It would be wrong to forget also that the company is one of only five on the London market to have increased its dividend by more than 15 per cent for the past10 years. On the basis of forecast profits of pounds 442m to next April, the shares at 255p stand on a prospective price/earnings ratio of only 12, backed up by a forward yield of 5.5 per cent. Very good value.