Challenge faces new Rugby boss

The Investment Column

Rugby's shares, up 1p to 107p, were unfazed by the sad news that the cement group's managing director, Peter Carr, is to retire early at the end of December. Although he is recovering well from the stroke he suffered in September Mr Carr has decided to bring forward his departure.

With a reputation for being a no-nonsense northerner, who travels second- class to keep costs down, he built up a good following in the City. But the equanimity with which the shares greeted the news was telling - some analysts believe a change at the top could breathe much-needed life into a well-run but strategically timid group.

Whoever takes over the top job - and it is not apparent that a suitable candidate exists inside Rugby- does so at a challenging time. Recent interim figures confirmed the problems afflicting all the company's activities - cement, joinery and steel wire. Underlying operating profits were 10 per cent down in the first half and earnings per shares slipped thanks to the shares issued last year to fund acquisitions and a rising tax charge.

Rugby has arguably been a little complacent, sitting on its leading position in joinery, for example, and it is now paying the price.

Its takeover record has also raised eyebrows, with some claiming the acquisition of Bunzl, the US building materials supplier, hree years into the American recovery, was badly mis-timed.

Potentially, there is plenty of value in Rugby despite the dire state of the markets it operates in. Once its current heavy capital expenditure programme is completed in a couple of years, it will become highly cash- generative, which coupled with new management bodes well for earnings recovery if the downturn proves to be the blip the optimists are counting on.

On a prospective price/earnings ratio of 12 on the basis of pounds 85m profits next year, up from a forecast pounds 77m this time, the shares are not obviously cheap. But having fallen so sharply over the past 18 months, down from 181p in January 1994, on a historically cheap multiple of sales and generating an impressive return on capital, the downside appears very limited.