THE INVESTMENT COLUMN : Waddington makes the right moves

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John Waddington has had a torrid time over the past four years as management, now led by chairman David Perry, struggled to reshape the business and focus it on packaging and specialist printing. But with the sale last November of the long-standing games business, including the Commonwealth rights to Monopoly and Cluedo, and net cash of pounds 10.9m from last July's pounds 42.5m rights issue, Waddington is now promising growth with a little more confidence.

The jump in pre-tax profits from pounds 8.07m to pounds 53.3m in the 12 months to 1 April was inflated by the pounds 30.8m profit on the sale of games. Before exceptionals, profits were up a fifth at pounds 22.6m.

The only underperformer last year was food and drink packaging, which slumped to an operating loss of pounds 700,000 from profits of pounds 2.9m. Management was wrong-footed in diversifying away from the declining market for margarine tubs. Restructuring cost pounds 800,000 in these figures, but savings could be worth pounds 1m a year and profits should flow if new business can be found.

The problems in food and drink dragged profits from the plastic packaging arm down from pounds 10.3m to pounds 7.56m and hid strong growth in the other US food services and UK pharmaceutical packaging operations, which shrugged off raw material price rises of up to 80 per cent. The latter should get a shot in the arm from Government and industry moves to supply more generic pre-packed medicines, where Waddington is investing pounds 5m over three years.

In folding cartons, last year's pounds 44.9m acquisition of the Dutch IMCA has made Waddington the Netherlands' top manufacturer and the tenth largest in Europe. The company believes it is in pole position to cash in on new pan-European buying policies at the likes of Nestle and Unilever. In just seven months, IMCA chipped in pounds 2.65m to paper and board packaging profits, up from pounds 4.08m to pounds 7.43m.

Specialist printing romped ahead from pounds 3.66m to pounds 5.36m, boosted by massive mailings for the Cheltenham & Gloucester, Halifax and Leeds Permanent building societies in connection with their various merger moves, which absorbed a massive 2,400 tonnes of paper. That bonanza is unlikely to be repeated, but a fourth pounds 6m web offset printing press is being installed to cope with expected expansion in the direct mail operations.

Profits before exceptionals of pounds 27m this year would put the shares, up 19p at 210p yesterday, on a prospective multiple below 12 - reasonable value, assuming management delivers on its promises.