Diversified products work for Laird

The Investment Column

Laird's formula in recent years has been to reduce its dependence on the auto industry, while maintaining investment levels in its three business legs centred around sealing systems, security hardware and computer boxes. And while it looks dangerously like a conglomerate, the record shows the strategy has worked.

Headline pre-tax profits only crept ahead by pounds 500,000 to pounds 66.6m in the year to December and even they were flattered by acquisitions made in the last two years - principally the Cego window hardware operation - which together chipped in an additional pounds 2.7m. But the bald figures hid some decent levels of growth. After a disappointing first quarter, business picked up from the end of March and profits rose 18 per cent in the second half.

Non-automotive operations led the way. Under a quarter of the business five years ago, these now represent over half the turnover after a very respectable growth rate of 25 per cent last year. The specialist packaging to Fullarton computer boxes division raised profits by 23 per cent to pounds 21.7m after a record year. And even if growth in the computer industry slowed, Fullarton is prospering as its big customers Compaq and IBM outsource more value-added assembly to suppliers.

Industrial products, which saw profits grow from pounds 27.6m to pounds 31.4m, was boosted by acquisitions and as one of the leading security products suppliers in the UK should benefit from the building upturn.

But the main story at Laird is still car-related. Sealing systems, one of the biggest suppliers of weather seals to the European auto industry, was hit by pounds 1.8m start-up costs for its new plant in North Carolina and competitive conditions in Germany. Profits slumped pounds 4.9m to pounds 21.2m as a result.

The figures demonstrated the importance of new models, both for manufacturers and suppliers. Laird was dragged down by the relatively poorly performing Volkswagen Golf and General Motors Astra in 1996, while further start- up costs of perhaps double last year will make 1997 unexciting, but next year may prove more interesting.

Volumes from North Carolina will start building from the first quarter and Laird will be gearing up production for a slew of new car launches in 1998 and beyond, including a GM model, the new Escort, the new VW Beetle "concept model" and a BMW to be produced in North Carolina.

Currency will knock at least pounds 5m off the bottom line at these levels, but Albert E Sharp thinks profits of pounds 73m this year will rise to pounds 83m next. That puts the shares, up 44.5p to 389p yesterday, on a forward p/e of 11, dropping to 10. Reasonable value.

Dagenham Motors ahead

No surprise about Dagenham Motors' figures yesterday. The company put out a statement in February warning analysts that they had taken too gloomy a view after disastrous half-year figures and pointing to full- year profits about the same as last year's pounds 5.1m.

In fact, Dagenham just beat 1995's result with pounds 5.12m pre-tax after a 9 per cent increase in turnover to pounds 291.9m. After a higher tax charge, earnings per share slipped a touch to 13.6p (14.4p) and a same again 5.5p made for an unchanged full-year dividend of 7.7p.

Dagenham has been through a turbulent time as its main franchise, Ford, lost market share and cost-cutting failed to keep pace. All that changed in the second half, with a 5 per cent reduction in the company's headcount and other efficiency savings leading to a strong final quarter.

So far this year, trading appears to have improved, with sales of new cars boosted by the introduction at the end of 1996 of the distinctive little Ka and the Explorer 4x4 models. For the ninth year in a row, Ford took the top three places in the best-sellers list with its Escort, Fiesta and Mondeo.

Used cars performed well with profits rising by 13 per cent and exceeding the return from new cars for the first time, while sales and profits from new commercial vehicles rose substantially.

The biggest boost for Dagenham, however, has come from Ford's decision to focus on fewer, larger dealerships and to unwind its archaic rules forbidding ownership of adjacent sales territories. The real beneficiaries from this will be the larger players like Dagenham with a strong relationship with the manufacturer.

On the basis of forecast profits this year of pounds 5.5m, the shares trade on a prospective p/e ratio of 7 and there is plenty of support from a yield of almost 10 per cent. Dagenham has had its problems but this seems quite an anomaly. Buy.

United Assurance targets costs

United Assurance Group, the product of last year's merger of Refuge Assurance and United Friendly, made an exceptional net profit of pounds 386m before tax out of the merger last year, but the profit on continuing activities was pounds 194m compared with combined profits of pounds 164m for the two partners in 1995. Most of the money came from long-term investment returns and transfers. General business was marginally profitable at best.

Shareholders get an 18p-a-share dividend, 35 per cent more than in 1995, but including exceptional losses on discontinued business earnings per share only rose from 36p to 36.1p. and new business premiums improved by a bare 2 per cent. The merger presents an opportunity and a challenge to shake off a lack-lustre image.

Group chief executive George Mack and finance director Bill McDonald have lost no time in drawing up plans to close half the branches, making a third of the staff redundant, before the end of the year.

The next step is to cut costs and increase sales per head to compete with the new wave of policies backed by heavy advertising and sold over the telephone.

The traditional market has been among families with below average incomes. It is a huge market with an urgent need for more financial products, but one where individual policies tend to be small and the costs of selling and servicing them are above average, especially as Mr Mack insists that United will continue to offer advice on the suitability of its products. New products and new methods are promised in 1998. The shares rose 12p to 486p, but for the investor it is a leap of faith.