View from City Road: Tackling recession the Rugby way

RUGBY GROUP has set a high standard that few, if any, other building materials companies will be able to meet. Its sales, profits and earnings all rose in the first half, when others, most of which have yet to report their figures, will have seen downturns.

Rugby's results owe much to its long- standing, low-risk strategy, put in place by Andrew Teare, now at English China Clays, and carried forward succesfully by Peter Carr, the current managing director. Acquisitions have been small and carefully integrated.

The traditional comparison with Blue Circle Industries - both are cement producers - puts the company in a particularly good light. While Rugby increased its profits by 10 per cent to pounds 30.2m in the first half, BCI is expected to disclose a 25 per cent downturn for the same period.

This is not to say that Rugby, which has about a fifth of the UK cement market, has escaped from the recession unscathed. Its profits fell in each of the past two years. But then so did Blue Circle's, and its profits are likely to fall again this year, which is not the case with Rugby.

The main feature of the interim results was cash flow. Rugby started the year with pounds 5m but ended the first half with pounds 23m in the bank, even after spending pounds 15m on buying some of the Ward Group from the administrators. By the end of August its cash pile had risen to pounds 30m.

This puts it in a good postion to add to its non-cement businesses in joinery, glass and steel, either here or overseas. It hopes to buy from hard-pressed companies in need of cash. It wants to buy a business that would add pounds 10m or so to annual profits of about pounds 60m, suggesting it would have to shell out roughly pounds 70m, assuming a lower multiple than Rugby's own.

Meanwhile, the interim dividend was unchanged at 2.85p, and it is safe to assume that the final payout will be maintained too, twice covered by earnings. This is something that few building materials companies will be able to beat.

The company's achievements have recently started to receive recognition in the City, with the shares outperforming others in the sector by 32 per cent last year, although they still lagged behind the rest of the market by 7 per cent.

At 169p, up 9p on the day, the shares are trading on 12 times earnings, which would make them attractive if not for worries about the rest of the sector, which are bound to hold back their performance.

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