View from City Road: BICC bites the property bullet

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The Independent Online
STATEMENTS by BICC about its own financial performance in recent years have required sizeable lashings of salt. Old habits die hard, but the market was relieved to see the company at least partly facing up to its disastrous involvement in commercial property with a pounds 35m general provision. It also reported pre-tax profits in line with expectations at pounds 77m against pounds 81m.

It was happier still to hear talk of satisfactory cash generation and to see a maintained dividend of 19.25p, with a final of 13.25p. This lifted the share price by 21p to 366p and cut the yield on the shares from 7.5 to 7 per cent.

But has BICC provided enough - pounds 65m in the past two years - to cover its property exposure? This amounts to about pounds 200m but may be too generous in its assessment of the group's stalled Spitalfields development and the implied valuation of its half-let Angel development on the edge of the City.

And just how cash-generative is BICC? The company's claim that it brought in a cash surplus of pounds 37m in 1992 after acquisitions, capital spending and tax dividends, did, of course, include the benefits of a pounds 154m rights issue in May.

Net debt has, in fact, risen from pounds 2m to pounds 41m, or gearing of 6 per cent on BICC's understated definition, but this is mainly due to exchange rate differences. Total debt, including convertible bonds and off- balance sheet borrowings, looks more like pounds 391m or gearing of 71.5 per cent.

Meanwhile, the tussle between TML and Eurotunnel seems no nearer resolution and has provoked a further pounds 8m provision in 1992.

Balfour Beatty, after a rise in profits from pounds 38m to pounds 40m, is reasonably well set with an unchanged order book for 1993. Its resilience in civil and power engineering remains impressive.

In cables, BICC's pounds 65m excursion into Spain since 1990 has turned sour as a collapsing Iberian economy sent its 67 per cent-owned subsidiary into losses. With sluggish BT ordering in the UK, European profits fell from pounds 91m to pounds 78m.

Big cost savings should be in place here by midsummer and also in the loss-making North American operations, helped by factory closures following the September acquisition of Reynolds.

Modest progress to pre-tax profits of pounds 130m should cover the dividend for the first time since 1990. A multiple of 18 is not a bargain but despite limited dividend growth prospects the yield has attractions.

(Photograph omitted)