Smaller Companies: Revitalised Dunkeld drops an Aitch

OUT of the ashes of Aitch Holdings, the textiles company, comes Dunkeld Group - a refinanced operation focused on men's shirts and swimwear.

Aitch was a messy affair. It had fingers in a lot of clothing industry pies and lumbered itself with a suffocating debt burden. In the five years to 1991 it made pre-tax profits just once, in 1989 when it achieved pounds 552,000. For the other four years Aitch's taxable losses varied between pounds 1.4m and pounds 7.3m.

Despite this its last chairman and chief executive, one Harry Rodgers, paid himself pounds 327,000 for the 12 months to 30 November 1991. Altogether the directors paid themselves pounds 735,000.

Last Easter, however, a boardroom putsch led by Stuart Hollander, a non-executive director, began a process that has transformed the group. Mr Hollander, now chairman of the renamed Dunkeld Group, persuaded the Hill Samuel merchant bank and the Northern Ireland Development Board to swap debt for new shares. Hill Samuel owns 29.9 per cent of the group.

The new executive team decided to stay firmly in textiles but operate only in markets that provided a premium market position.

Dunkeld settled on men's shirts and women's fashion swimwear. It makes Ben Sherman shirts in Ulster and recently bought Derby- based Slix swimming costumes. It plans to make all its swimwear at its mill in Neasden, north London.

Last Thursday Dunkeld produced profits that show the first fruits of success. It retained profits of pounds 2.4m compared with losses - restated to take account of closure costs - of pounds 17.5m.

Operating profits from continuing businesses were pounds 1.5m compared with losses of pounds 4.4m.

Shares stuck at 35p in response to the results, up on the 22p all- time low last March but a long way short of the 500p-plus reached in the mid to late 1980s.

Stated earnings per share were 0.5p. There is no dividend. This year Dunkeld may make 1.4p of earnings - assuming the company achieves its aim for margins on shirts, claws its way to a 10 per cent sales increase, has a similar interest bill and persuades the Inland Revenue that past losses mean it should not pay tax. .

These assumptions more or less tie in with Dunkeld's aim of making a 30 per cent return on capital employed. But it will only manage 1.4p if there are no more one-off items of the sort that litter last year's figures.

At 36p the shares are at 25 times prospective earnings of 1.4p - a heady rating. Investors may like more proof that the company is stable and capable of solid growth before taking the plunge.