Transformation at Low & Bonar

The Dundee-based plastics and packaging group Low & Bonar has been transformed since Jim Leng arrived as chief executive three years ago. The benefits of his short tenure were plain from interim results to May.

Trading profits of pounds 25.6m have now overtaken those in the whole of 1992, the year in which Mr Leng took over. After such heady growth, it is perhaps hardly surprising that pre-tax profits a mere 22 per cent ahead at pounds 24.8m failed to excite the market. The shares fell 20p to 509p.

That was a harsh appraisal of another strong result, which saw group margins grow from 10.8 to 11.7 per cent, helped by a cracking performance from the rapidly improving North American businesses. Increasing productivity there on the back of a 16 per cent rise in sales pushed profits up 61 per cent to pounds 6.67m, generating a double-digit return on sales for the first time.

European packaging was held back by a pounds 500,000 negative swing into a pounds 100,000 loss on the Bibby & Baron UK plastic bags operation, which was sold in February. Flotex non-stain carpet sales were also disappointing. But the actions taken and cost reductions worth pounds 1.75m in a full year should restore momentum in both European packaging and carpets. Low was able to fully recover raw material costs up 19 per cent in the six months and believes they are near the peak. The converse of that is that economic growth may be slowing and the company warned that 5 per cent volume growth may now slow to nearer 3-4 per cent.

Margins of between 10 and 15 per cent remain the target and profits of pounds 53m this year would put the shares on a prospective multiple of 14. Still reasonable value, even after a 15 per cent outperformance this year.