Bottom Line: Harrisons profit slippery as soap

HARRISONS & Crosfield is an odd collection of businesses. Formerly a colonial plantation owner, over the years it has added chemical businesses, builders' merchants, dog food and most recently French corn flakes. Diverse, but not quite as diversified as it used to be, says George Paul, the chief executive. When he arrived in 1985 Harrisons' range took in financial services and golf clubs.

Mr Paul has refocused Harrisons, but it remains an unattractive conglomerate. Pre- tax profits for the year to 31 December were pounds 85m up from pounds 71m in 1991, but are still way below the pounds 131m achieved in 1989. In addition, 1992 figures are flattered by a big jump in profits from the surviving plantation business, most of which is devoted to producing palm oil for household use in the third world. Plantations contributed pounds 20m to trading profits, up from pounds 10.5m previously. Most of the jump was thanks to higher world palm oil prices, over which Harrisons has precious little little control.

Food and agriculture also contributed more to profits. The French are discovering breakfast cereals, and Harrisons is benefiting. The division was also helped by the purchase of BOCM-Silcock, a cattle, sheep, pig, and poultry feed business.

The downside is chemicals and construction. Harrisons makes chrome-based chemicals for use in wood preservers and in leather tanning; iron-oxide-based colourings for bricks and paving stones; and PVC dyes as well. Including rationalisation costs (450 jobs) profits from chemicals fell from pounds 29.5m to pounds 27.7m in 1992. Profits from the 209 Harcros builders merchants and timber trading fell 11 per cent to pounds 20.3m.

It is hard to get excited about Harrisons because so much of its business is commodity-driven and even the bits that are not are volatile. And while recovery in the building industry may be a positive influence on the company, a sharp fall in the palm oil price or a difficult stretch for farmers could wipe out any benefit.

Harrisons' balance sheet is hardly a picture of health and beauty either. The BOCM acquisition from Unilever has driven borrowings up to pounds 260m from pounds 185m, or 51 per cent of net assets.

M&G, perhaps the keenest of institutions when it comes to maintaining dividend payouts, is Harrisons' biggest shareholder. So it is perhaps understandable that Harrisons has declared another 9p dividend. But yet again it was uncovered by earnings per share of 7.6p (7p). The yield is well above average at 6.7 per cent.

There is little else supporting the share price, up 5p at 167p yesterday. If Harrisons makes pounds 100m of taxable profits this year, the shares are trading on 17.4 times earnings. There is better value elsewhere.