Warning signs at McKechnie

McKechnie has had the look of a well-oiled machine of late, shifting deftly out of metal bashing and into plastics and consumer markets such as curtain and shower rails. Profits have been boosted by a recovery in demand in many of its markets combined with the fruits of an acquisition spree over the past two years - two large deals followed by eight smaller purchases have kept the momentum going.

The share price has risen accordingly, more than doubling from 192p in 1990 to more than 454p, justified, at first glance, by yesterday's results that looked like more of the same. Pre-tax profits were up 28 per cent to pounds 45m on sales up a similar amount to pounds 532m.

Linread, the fasteners group acquired for pounds 26m last year, made its first full-year contribution of pounds 5.6m and the plastics division performed strongly with profits up from pounds 4m to pounds 14m.

But there are some warning signs. The company said it had noticed a "pause in demand" in the current financial year which may lead to slower growth in the first half. Perhaps more worrying is the sharp setback in the Australian housing market where McKechnie has some exposure.

In addition, McKechnie still achieves half its sales and more than half its profits in the UK, where a recovery in the housing and consumer markets is proving elusive. McKechnie's consumer products division includes businesses in curtains, blinds and shelving as well as door furniture where it supplies B&Q. This leaves the company exposed to the weak housing market which has already hit the DIY retailers hard.

The company plans to redress the balance with further growth in Europe and North America. Even so the warning was enough to knock 12p off the shares, which closed at 442p.

NatWest Securities is forecasting profits of pounds 51m this year, putting them on a forward rating of 12.

That is not demanding but, with the outlook for the UK economy uncertain and the picture in Australia equally cloudy, there is little reason for the shares to move any further ahead. High enough for now.