View from City Road: Lean times for BM Group

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The Independent Online
BM GROUP, the construction equipment and engineering company, did its best to reassure investors yesterday that it is not, as had been widely thought, a paper edifice waiting to be blown away. It fastidiously answered critics by providing much more detail with its annual profits announcement, by appointing new auditors to clean up its accounting image and by giving a thorough review of prospects.

BM used to be a star performer. Fuelled by a succession of acquisitions and under the controlling hand of its founder and chairman, Roger Shute, BM's turnover, profits, and earnings per share rose and rose. The all-important earnings figure increased at a compound rate of 20 per cent each year between 1982 and 1991. The shares outperformed the FT All-Share index by 1,000 per cent in the same period.

Then came the fall. It became apparent that the two latest and largest acquisitions - Blackwood Hodge and Thomas Robinson - were proving difficult to digest. In June the company said trading in the last quarter of its financial year had been bad, and Mr Shute retired through ill-health. The shares crashed from 400p to 100p.

Investors were right to reassess BM in the summer. Taxable profits for the year to June were flat at pounds 34m. Profit margins were eroded and earnings per share slumped by 14 per cent.

Worse is to come. Markets worldwide for construction equipment are poor. Devaluation of the pound will also increase the cost of importing equipment, costs BM may not be able to hand on to customers.

Earnings growth in the current year is out of the question. BM will do well to push the figure ahead in the year to June 1994. At 91p, down 15p yesterday, the shares are trading on a multiple of 4.5 times current estimates of this year's earnings. That gives nothing for bid prospects, something Moger Woolley, the new chairman, can be relied on to discourage, considering his experience at DRG, where he was chief executive before it was acquired by Pembridge.

Better to take a lead from BM's decision to change its dividend policy. The 47 per cent increase in the total payout to 5p, where it is covered more than four times, means BM is now yielding 7.3 per cent. Buy for income.

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