View from City Road: Siebe stays in control

THE PERFORMANCE of shares in Siebe, the controls and safety equipment group, has been little short of spectacular in the past two years. With another 5p rise to 392p yesterday, in response to a 7 per cent rise (or 10 per cent at constant exchange rates) in half-year pre-tax profits to pounds 80.3m, Siebe has outperformed the market by 80 per cent since the end of 1990.

At that time its shares stood at 150p and it had few City friends after the previous summer's dollars 656m debt-financed purchase of Foxboro, the automation controls group based in Massachusetts.

Foxboro, after a dollars 100m cost-reduction programme, is now more or less fully integrated into Siebe, contributing pounds 5.6m to interim pre-tax profits after all financing costs and the use of pounds 5.9m of provisions.

A company that was losing money three years ago is now turning in an operating margin of 17.3 per cent, despite lower sales as orders from key gas, oil and petrochemicals markets were delayed. The outlook for 1993 is 'bullish', says Siebe.

Cost reduction has been far from confined to Foxboro. Although sales, at constant exchange rates, fell by 3 per cent, group operating margins rose from 13.4 per cent to 14.2 per cent thanks to determined cost-cutting in most areas.

In otherwise tough markets specialised engineering scored a 70 per cent jump in profits to pounds 8.5m on the back of new German automotive product launches.

Some 1,200 jobs went in the first half, making a near 20 per cent reduction in the workforce to 31,000 since September 1990, and Siebe has disposed of 2 million square feet of redundant factory space.

Cash generation also shows few signs of flagging. Just over pounds 34m surplus cash came out in the first half, reducing gearing from an end-year 78.8 per cent to 68.7 per cent, which leaves Siebe on course for next year's target for gearing in the mid-fifties.

Hefty gas generation, a 45 per cent US sales base and a possible pounds 15m currency kicker in 1993/4 make a multiple of 15, taking CNWM's forecast of pounds 173.5m this year, look cheap. But the downturn in Germany and Japan has yet to hit Siebe and the company's admission that it is 'looking around' for opportunistic acquisitions may hinder, but not rule out, further outperformance.