View from City Road: Think green, conserve cash

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The Independent Online
THE 'GREEN' image of Simon Engineering, based on its environmental division, has taken on an increasingly mildewed appearance in the past 18 months.

UK spending on industrial waste treatment has slumped while hordes of contractors are battling to win business from the privatised water companies and municipal markets in North America have eased.

In the first half of this year profits from Simon's environmental division plummeted from pounds 1.6m to pounds 0.2m. The company, although still keen on the longer-term prospects, has decided enough is enough and has put the division up for sale.

Analysts reckon that with sales of around pounds 100m and net assets of pounds 20m the business, which has already attracted interest from other companies, could fetch between pounds 30m and pounds 50m. If Simon can raise this kind of cash, which would make a sizeable dent in its end-June borrowings of pounds 51m, it might shed a different light on the question of the final dividend. Along with a slide in pre-tax profits from pounds 10.4m to pounds 6.1m yesterday Simon announced an unchanged interim dividend of 5p.

But in view of the depressed level of orders in process engineering projects - only Simon's oil-related services are reasonably active - it may well be that Simon is heading for an uncovered dividend for the second year running. County NatWest expects pounds 17m pre-tax or earnings of 11.8p against a total dividend payment, if maintained, of 15.7p. Profits of pounds 25m for 1993 would still not do it.

A yield of 11.3 per cent at 185p suggests the market is half-expecting a cut in the final dividend from 10.7p to 5p. Simon should think green and conserve its cash.