Bottom Line: Morgan Crucible survives flames

MORGAN Crucible has done well to keep its operating profit margins more or less intact at 10.2 per cent during 1993 in a tough pricing environment for its products.

Equally pleasing is a pounds 22m reduction in working capital in the face of a 16 per cent sales gain to pounds 793.3m, which has brought about a turnaround from a cash outflow of pounds 55.6m in 1992 to an inflow of pounds 200,000 last year after paying pounds 10.4m out on deferred acquisitions.

These are key points in an otherwise flat-looking set of results for 1993. Excluding currency gains, the sales rise was only 6 per cent. The story was much the same for operating profits, which increased by 3 per cent excluding both currency effects and acquisitions, and pre-tax profits rose 7.7 per cent to pounds 66m.

Although the company, which earns half its revenues in the recovering US, says order books are up by 6 per cent and that the worst is over in Continental Europe and Japan, it has left its final dividend unchanged for a maintained total of 12.6p. This may partly reflect the fact that volume gains are not expected to be large this year and, despite an average price increase of between 3 per cent and 5 per cent so far, margin improvement will not be significant.

It also stems from Morgan's need to rebuild earnings cover from its previously low level of less than 1.5 times.

Gearing of 66 per cent is a limiting factor. But if Holt Lloyd, which managed a surprising profit leap from pounds 4.1m to pounds 7.7m, can be sold for at least pounds 50m, this ratio will halve.

Given the subdued immediate outlook, a p/e of 19, assuming pre-tax profits of pounds 70m this year, and a yield of 4 per cent at 381p are looking longer-term, as should investors.