Outlook: Morgan Crucible

IT WAS somehow fitting that the bombed-out engineering sector should feel the shock waves from yet another profits warning on the very same day that shareholders voted through the Siebe-BTR merger.

Morgan Crucible's warning that profits will be 15 to 20 per cent lower than the previous year is either down to bad luck or bad judgement. Normally it can rely upon hard times in one industry or one country to be offset by good times elsewhere. On this occasion, however, all its eggs were in the basket marked trouble. Luckily, not many other companies find themselves at the mercy of a semi-conductor slump, Asian steel dumping, production bottlenecks at Boeing and a General Motors strike all at the same time. But traders still took their cue from Morgan Crucible's pot-pourri of woes and marked shares lower across the sector.

Despite its sequence of misfortunes, Morgan Crucible is valiantly maintaining the dividend and relying upon 1,000 redundancies, a spot of corporate surgery and the obligatory boardroom departure to put the vessel back on course.

The engineering sector as a whole is now trading on a yield 50 per cent higher than the all-share index and a multiple that is 41 per cent below the average. The message is unmistakable - the market believes the outlook for engineering earnings to be insufficient to maintain dividends.

The solution Siebe and BTR have opted for is a merger that should chop pounds 250m from costs by year three. Shareholders in BTR voted it through with a heavy heart, but given the parlous state of the sector, it is surely a route that others will be forced to follow.