The way ahead unclear for BTR

THE INVESTMENT COLUMN

The chunky volume of slides accompanying BTR's half-year results announcement yesterday would make a good door-stop, but as an insight into the Slazenger to Formica to Hawker Siddeley conglomerate it was pretty hopeless. That's not really the slides' fault, it's just that making sense of a business with about 1,000 operating companies in five continents is beyond a short presentation.

It is hard to argue, however, with BTR's performance over the long run - profits have risen relentlessly over the past 10 years and the improvement continued in the first half of the year. Stripping out corporate deals, underlying profit before tax rose 16.5 per cent to pounds 706m (pounds 606m). On the same basis, earnings per share rose 19 per cent to 11.5p and a 5.54p dividend, worth almost 7p as the new style of foreign income payout, was 6.5 per cent higher than last time.

A 5p slide in the share price to 337p reflected disappointment at relatively cautious comments on BTR's Australian activities and the electric power operations at home. A more generous dividend was also expected by some.

Nobody would dispute the skill and tightness with which the BTR behemoth is managed from its unprepossessing London base. Fat is ruthlessly stripped out of the operating subsidiaries, investment runs usefully ahead of depreciation, interest payments are covered an extremely comfor- table 10 times by profits, and operating margins, up from 15.6 to 16.4 per cent, are streets ahead of most of its competitors.

What is less clear is where the company can go from here. As Norman Ireland, chairman, pointed out recently, if sales grow at a modest 10 per cent a year for the rest of the decade, BTR's turnover will be an awesome pounds 16bn by the year 2000. Making a difference to a beast that size is a massive task - the reason the Nylex move, widely questioned in the City, is so important. How successful it will be is likely to remain unanswered for many years, but creating a wholly-owned base in Australia is the key to BTR's ambitions in Asia, a market it knows it must succeed in.

During the wait for the capital growth that cracking Asia would provide, BTR's attraction is its yield. At 5.5 per cent forecast for the current year, the shares' income is above the market average but less than at Hanson, where growth prospects are arguably better. Unexciting.

RMC price makes shares a steal

The last time RMC called on its shareholders for cash, England were winning the football World Cup. So it is no surprise that the deal, to be funded by the rights issue announced yesterday, is a bit special. The market's reaction, pushing the shares up 30p to close at 1,139p, shows the warmth with which the City greeted the proposed acquisition of the minority stake in RMC's successful German operations.

Given the current pariah status of much of the construction sector, it is a remarkable performance to record a share price rise when the terms of the cash call - one for four at 950p - imply a notional ex-rights price of 1,077p. In effect the shares have risen 62p, or 6 per cent, on the news.

Buying in the 36 per cent of RMA (the German subsidiary) not already owned is a good deal for operational reasons. Financially, on an exit multiple of only 8 times, it is a triumph and a fitting swansong for chairman Jim Owen, who bows out at the end of the year.

Accompanying the issue, interim figures were equally pleasing. Pre-tax profits of pounds 130m, up 32 per cent, validated RMC's long-held strategy of diversifying out of the UK - 60 per cent of its profits now come from continental Europe and there are operations in the US and Israel as well. Profits rose across the board although the company warned that volume increases in the UK had petered out in May and France continued to be a tough market.

On the basis of forecast profits of pounds 350m this year and pounds 390m in 1996, the shares trade on a prospective p/e ratio of 13.4 falling to 11.7. That compares with a market average multiple of 12.7 next year and is an unjustified discount. If RMC was in any other sector, its shares would trade at a premium. The shares are good value in the market and, at the rights issue price, a steal.

Destocking

worries for Arjo

Arjo Wiggins Appleton has been a switch-back ride for investors since the Anglo-French merger that created the paper group in 1990. The net result has been an 18 per cent under-performance against the market since then, made worse by yesterday's 1p dip to 249p.

Latest worries focus on destocking as the European merchanting arm suffers from buyers running down their inventories now that fears of fast-rising prices have receded.

Arjo warned yesterday that this stock correction would hit both growth and margins in the third quarter, although it remains optimistic that progress will be resumed in 1996. It is easy to see why. Profits jumped 29 per cent to pounds 135m in the six months to June but the figures were almost entirely driven by European paper merchanting, where profits more than doubled, rising from pounds 17.2m to pounds 37.6m in the half-year.

The business remains sound, however, and Arjo has strengthened its position by spending around pounds 200m on four European merchanting companies this year. Further deals to fill gaps in the Germanic countries look possible before the end of the year.

The outlook in manufacturing is less rosy. Half-year profits were flat in Europe and slid pounds 10.2m in the US as price rises failed to keep pace with costs. With pulp prices set to remain firm, Arjo will need to overcome customer resistance to keep margins moving ahead.

Assuming profits of pounds 255m for the full year, the shares are not dear on a prospective multiple of 12. Worth holding for the downturn in the pulp cycle when margins should receive a useful boost.

COMPANY RESULTS

Turnover pounds Pre-tax pounds EPS Dividend

Brammer (I) 91.99m (74.14m) 10.1m (6.5m) 14.7p (9.7p) 4.75p (4.5p)

British-Borneo Petroleum (I) 20.47m (17.55m) 7.511m (5.652m) 11.6p (9.7p) 2.67p (2.67p)

Burford Holdings (I) 17.2m (11.5m) 6.512m (5.121m) 1.76p (1.73p) 0.85p (0.75p)

CALA (F) 87.4m (77.2m) 6.9m (3.4m) 10.9p (6.5p) 3.2p (2.8p)

Cookson (I) 876.5m (769.1m) 81.2m (3.6m) 8.7p (6.5p) 3.5p (3.2p)

Graham Group (I) 223.6m (203.3m) 10.6m (9.13m) 6.1p (5.3p) 1.9p (1.75p)

Hobson (I) 112.8m (29.1m) 7.1m (0.5m) 1.22p (0.23p) 0.4p (nil)

Manders (I) 77.2m (47.5m) 5.5m (18.3m) 9.07p (32.52p) 3.1p (2.9p)

OGC Intl (I) 127.1m (114.1m) 7.5m (5.8m) 7.81p (6.1p) 2p (1.838p)

PizzaExpress (F) 30.6m (24.9m) 6.63m (4.823m) 8.4p (6.5p) 2.2p (2p)

William Baird (I) 299.8m (233.3m) 8.4m (8.8m) 4.9p (5.2p) 3.55p (3.55p)

Yorkshire Food (I) 71.2m (50.6m) L85,000 (L919,000) L0.24p (L2.06p) 0.88p (0.8p)

(Q) - Quarterly (F) - Final (I) - Interim

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