Bottom Line: BBA at the mercy of currencies

IMMEDIATE market reaction to results from BBA yesterday was positive. Its shares rose 4p to 171p as the engineering company was identified as a beneficiary from the realignment of Continental currencies.

But the honeymoon was brief. By lunchtime the shares were down - a reflection of the fact that it will require something more substantial to help the company out of its sticky predicament.

There was also general disappointment that interest rate cuts did not materialise straight away and continuing worries about the German economy. Germany - rather than France, Spain or Portugal - is BBA's biggest Continental market.

One way or another BBA's performance is dependent on currencies at the moment. Most of the 60 per cent increase in profits from North America was due to a 16 per cent fall in the value of sterling against the dollar.

Currencies are not the only thing making clear analysis difficult. FRS3 profits before tax jumped 75 per cent to pounds 50.3m. However, the rise is rather less impressive once a pounds 17.2m profit on the sale of Asia Pacific is stripped out. Profit after interest but before exceptional items was stuck at pounds 33.1m against pounds 32.9m. The future is made more uncertain by the premature retirement of John White, the energetic chief executive, through ill health.

BBA has three main areas of operation - automotive, industrial textiles and aircraft servicing. Trading profits on the automotive side - at pounds 13m, down from pounds 17.4m - benefited from a marginally better UK environment but were hit by weak demand on the Continent. They also bore the brunt - pounds 5m - of BBA's continuing redundancy programme.

Industrial textiles and aircraft servicing both increased operating profits. The industrial division contributed pounds 23.7m, up from pounds 17.9m, and the aeroplane business contributed pounds 8.6m against pounds 5.6m. Both are heavily biased towards the US, however, so the results were flattered by exchange rate movements.

The brightest spot is BBA's promise to maintain the annual dividend at 7.5p. At 166p, down 1p yesterday, that is a prospective yield of 5.6 per cent, well above average.

BBA is on target to make pounds 65m in the full year before exceptional gains. That is equivalent to about 7.8p of earnings, putting the shares on a forward multiple of 21 times. That looks too high. Sell.