Brambles still in a shambles

Novar looks like a star for the future; Singer & Friedlander fail to excite market

Should Brambles Industries be renamed Shambles? If November's shocker of a profits warning is anything to go by, the answer is yes.

The group, formed from the merger of Australia's Brambles with parts of GKN, admitted that 14 million of its pallets were lying about in warehouses not earning any money. The shares tanked and the company's premium rating disappeared overnight.

Yesterday's half-year results were less about delivering new news – there wasn't much of that – and more about making reassuring noises.

The main task is to sort out the Chep pallets business in Europe which leases industrial pallets, typically to consumer goods companies to transport their goods on. It all went awry when it emerged the group was buying new pallets without keeping a proper eye on where the old ones were, or whether damaged pallets could be repaired. This mess will take 30 months to sort out and cost a total of £85m in restructuring, including 400 job losses, and the introduction of new IT systems.

Some encouragement for shareholders should come from the pallets division in the US where internal problems have been addressed. This resulted in a 44 per cent increase in profits in the half year to December.

Another positive was a 9p jump in the share price to 139p on relief the results were no worse than forecasts. Comparable operating profits in the half year were up 7 per cent to £170m. After merger costs and interest, the pre-tax figure was £71m compared with the previous year's £50m.

The outlook is lacklustre. The Cleanaway waste disposal business has problems in Germany. The Recall data management unit has seen growth slow and margins fall.

The shares now trade on a lowly price-earnings rating of 10 times. The potential upside for shareholders is that Sir CK Chow, the chief executive, can sort out the problems without the additional unpalatable news most analysts fear.

But as the market has seen with companies such as Chubb, a premium rating takes little time to lose and a long time to restore. This column has taken a bearish stance on Brambles since its flotation and with the existing credibility problem the shares are still best avoided.

Novar looks like a star for the future

From Weybridge in Surrey, Novar runs an empire that extends across the globe and takes in businesses making window frames and computer parts, developing CCTV technology, and providing telephone cabling to buildings, among many other things. Like many, it bought into telecoms and computer-related businesses at the height of the boom and is regretting it now. But if the management can be criticised for poor acquisitions, they can't be faulted for "right-sizing" these businesses to the new mean, lean economic times.

The company was still able to generate £55m of free cash flow last year and maintain a well-covered dividend that gives it a yield of more than 8.5 per cent. This despite the fact that its markets appear to be bumping along the bottom, give or take the odd spike in demand as customers restock. Unless you are very bearish on the prospects for the US economy – to which three-fifths of the business is exposed – then Novar shares are interesting. Yesterday's results were spoilt a little by news that efficiency gains will be wiped out this year by an increase in pension provisions. But the shares still climbed 1.5p to 112p. With analysts forecasting £95m of profit this year, the price-earnings ratio of 10 makes Novar a good long-term bet.

Singer & Friedlander fail to excite market

Singer & Friedlander, the blue-blooded asset management and banking group, finds itself in a strategic bind.

It has sold off most of its old stockbroking interests but is struggling to find attractive assets to buy to bulk up its new favourite areas of business.

It has also long been criticised for tying up more capital than it needs for its lending activities. Yet it has spurned share buybacks and even slashed its dividend yesterday, when it published disappointing results for 2002.

Meanwhile, it has proved impossible to sell the remainder of its Swedish stockbroking unit, Carnegie. Until it does, predators that have long been seen circling the group are unlikely to make their move.

And all the while the share price has been drifting, and investors who accepted our advice to hang on to the shares this time last year have been ill-served. It is hard to see a reversal of fortune until the bear market is unequivocally over.

In 2002, profits from asset management slumped 57 per cent to £6.0m, on top of a 23 per cent fall the previous year. It says it is not losing many customers – "they have remained loyal and generally stoic", it said – but a few pension fund mandates have been lost.

The main banking business, though, is performing well, and saw profits rise 18 per cent. It has some nice niches, lending to the National Health Service for example, and should continue to grow. S&F shares were steady at 125p.

John Hodson is splitting the roles of chairman and chief executive (an existing non-executive is moving across to take the role of chairman), but this is a limited reshuffle that may not signal the sort of strategic shift that the market will need to get excited about S&F shares again.