View from City Road: More guidance would be good

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GREG HUTCHINGS, chief executive of Tomkins, thinks the City is being churlish in focusing on the lack of information about progress at Ranks Hovis McDougall while ignoring another excellent set of results for the six months to October.

But shareholders' confidence in his ability to produce good results is already reflected in a share price that has outperformed the market by 10 per cent over the past year - despite a 19 per cent drop on the day the RHM deal was announced - and by almost twice over the past three years and by 12 times in the past 10 years.

That puts it far ahead of conglomerate rivals like Hanson and Williams, whose performance looks pedestrian by comparison. Even BTR, most similar in style and reputation, managed to better it only on a one- year view. Despite that, Tomkins' prospective multiple for the year to March 1994 of about 14.5 times does not represent a big premium to its rivals. Williams stands at 15.6 times forecasts for the year to December 1994.

All four stand to benefit from an economic upturn. Tomkins says this is already evident, if patchy, in the US, while in Britain confidence is growing, but has yet to filter through to sales. Its results give a hint of how quickly the benefits can come through. Its industrial products division, which supplies the housing and recreational vehicle markets, increased profits by 34.5 per cent to pounds 14.8m as demand started to recover.

Those few green shoots helped the group shrug off its 'toughest six months' ever and, overall, pre-tax profits rose 7.6 per cent to pounds 47.1m, earnings by 8.2 per cent to 4.87p a share, and the dividend by 12.1 per cent to 1.805p. It was also helped by a pounds 2.1m rise in interest earned, reflecting cash balances on average pounds 60m higher than the year before.

Given that the RHM deal is less than a month old, Mr Hutchings is justified in keeping his counsel on what he has found so far - although a bit more guidance on how much cash it will have and the number of shares in issue would have been helpful. But that means the shares, down 11p at 246p yesterday, are likely to remain unsettled until the market gets the information it needs.

In the medium term, however, it gives Tomkins the edge over its rivals - at least until they manage to clinch an acquisition.

(Photograph omitted)