View from City Road: US punctures Delta's hopes

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The Independent Online
LIKE MANY others, Delta, the cables to circuit-breaker and plumbing group, has paid a hefty price for over-optimism at its annual meeting in April. Yesterday it admitted that even the tentative indications of the beginnings of a slow recovery it saw then had proved to be purely transitory.

Such sentiments, accompanying a 6 per cent fall in half-time pre-tax profits to pounds 31m and an unchanged interim dividend of 4.2p, provoked sizeable downgradings of forecasts. Delta shares, which topped 500p after the annual meeting, crashed by 25p to 353p.

Before rushing to castigate the Delta team, led by Robert Easton, chief executive, for blotting its copybook, it is worth noting that the real headache is in the US. A swing from profits of pounds 2m to losses of pounds 900,000 there undid the effects of an improvement, on balance, in circuit protection, engineering, UK cables and industrial services.

The problem is Suprenant, which was bought in 1988 for dollars 33m as a specialist maker of high-tech cables for the US defence industry. As this source of demand dried up, Suprenant collapsed into losses exacerbated by the fact that most of its equipment is designed to meet specific customer requirements and not easily adapted. A third of the workforce has gone and a move to break even on sales of around pounds 40m is unlikely until the end of this year.

Not that life elsewhere has been beer and skittles. Far from it. Delta's already heavily rationalised operations have shed a further 400 in the first half, making 25 per cent of the workforce in three years, all charged to profits.

Engineering, led by buoyant demand for plumbing fittings in Europe, did well to lift its profits by 17 per cent. New products also gave a useful leg-up to circuit protection, where markets are grim but de-stocking is not so much of a problem as in 1991, and profits rose by 27 per cent.

UK cable profits stabilised by comparison with the second half of 1991, although prices remain the lowest in Europe and volume is flat on its back.

Assuming pre-tax profits of pounds 62m Delta shares are on a p/e of 13.5p and a yield of 5.3 per cent, covered twice. Without evidence of a building-led recovery, this is still a rather optimistic rating but it correctly recognises long-term strengths.