Bottom Line: Sidlaw's big appetite

SCEPTICS who thought Sidlaw's pounds 79m purchase of Courtaulds' packaging operation would be too big to swallow are being forced to revise their judgement.

The digestion of last July's acquisition, which trebled the size of Sidlaw's packaging division, has gone far better than expected, accounting for most of yesterday's 49 per cent rise in interim pre-tax profits to pounds 6.9m.

The deal gave Sidlaw, previously over-reliant on oil services, greater purchasing power and a big presence in Europe. As result, despite massive pressure on prices in the packaging industry, Sidlaw has managed to improve margins at the new operation.

Market share was maintained and sales volumes and order books held up well.

Reorganisation to reduce costs in areas of the market where there is over-capacity will bear fruit in the second half.

Operating profits in oil services of pounds 3m, up 2 per cent, were held back by losses at its Supplylink joint venture.

This had been expected to break even, but losses in the first half of pounds 250,000 could rise to more than pounds 400,000 for the year.

Gearing of 73 per cent is expected to come down to 70 per cent by the year-end, and the company remains strongly cash-generative. The interim dividend was 4.5p (4.25p), with earnings up 3 per cent to 9.1p.

Yesterday's 11p fall in Sidlaw's share price to 338p reflected some profit-taking after the shares had outperformed the stock market by 22 per cent so far this year. It was tipped at 305p in the Independent's portfolio for 1994

In the long term, Sidlaw shares should continue their strong recent showing. Full-year profit forecasts of pounds 16m- pounds 17m mean a multiple of 15.9 at a share price of 340p, still a discount to the packaging sector.