Whitecroft falls on warning

The Investment Column

Whitecroft, a mini-conglomerate spanning lighting, doors and medical cotton, has been revitalised since 1992 under the direction of new management led by chief executive Mike Derbyshire. After a classic kitchen sink job in 1993, when massive provisions sent the group to pounds 41.8m loss, profits have recovered sharply. However, the market was keener to focus on what it saw yesterday as a profits warning than news of an 18 per cent rise in underlying profits to to pounds 8.08m in the year to March. (The reported figures were distorted by a pounds 5.91m property-related profit last time.) The shares duly slid 12p to 212p.

The continuing deterioration in the commercial construction market meant both the lighting and building products divisions were having to combat lower levels of activity and price deflation, the company warned. But Mr Derbyshire reckons the market has over-reacted. The company managed to shrug off the malaise to produce strong second-half figures, he said, and still ended the year with order books 20 per cent ahead.

Certainly the current year should be boosted by a full-year's contribution from Chalmers & Mitchell, acquired for pounds 4.75m in November. The Glasgow- based company has given Whitecroft market leadership in so-called hazardous lighting - equipment used on oil rigs and in chemical plants, for instance - to add to its strong market positions elsewhere. The lighting division, the second biggest in the commercial market behind TLG, raised profits last year by 6.3 per cent to pounds 6.21m last year.

The Leaderflush doors business, the other area affected by the construction market, also did well to lift profits by a tenth to pounds 13.5m. But, given that in total between a fifth and a quarter of group profits are exposed to construction, the market is probably right to be a little cautious over short-term prospects. Further out, the pounds 7.3m being spent on Edward Hall, which leads the European market in medical cotton fibre, should drive future growth and there may yet be recovery in the construction market.

With profit forecasts downgraded to around pounds 8.5m, the shares stand on a forward price-earnings ratio of around 15. High enough for now.