View from City Road: Marley's bright spot in sluggish industry

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The Independent Online
Marley kicked off the building materials interim reporting season yesterday with further evidence that, although the industry is picking itself off the floor, recovery will be nothing like as quick as heady stock market ratings would imply.

Investors make a living out of looking over the horizon but if the sector continues its current outperformance (20 per cent since January), they will be trading their rose-tinted spectacles for periscopes.

The roof tiles, plumbing and car parts group doubled its interim profits from a depressed pounds 6.1m to pounds 13.2m but warned that recovery had slowed. In response, the shares, which in line with the rest of the building materials sector had almost tripled since last September, retreated 3p to 163p.

Investors are rightly wondering whether a forward price to earnings ratio of 24 is justified, even for a company that more than quadrupled earnings per share from 0.8p to 3p and maintained its dividend at 2.1p.

Turning a pounds 700,000 loss from roof tiles and concrete blocks into a pounds 1.6m profit is impressive. But the fact that profits would have been pounds 3m better in the division had prices remained at last year's level indicates the problems still facing the industry.

Taking into account a rise in sales from pounds 117m to pounds 123m, margins are dismal. Although the ability to make price rises stick in April and May augurs well for the rest of the year, it will be 1994 before prices return to even last year's level.

On the bright side, the other clear message to emerge from Marley's figures is that the construction industry in Germany is still buoyant. The lighter, maintenance end of the trade, which buys the company's plastic plumbing and floors, is still bucking the economy's decline.

Marley reckons it has taken pounds 28m of cost out of the business over the past two years. That, and its exposure to the house-building and motor industry recoveries, means that it is arguably the best placed of any of the building companies due to announce figures over the next five weeks.

And if Marley is looking a bit pricey, most of the rest of the sector looks worryingly overvalued.