Investment: Few material gains for BPB

BUILDING MATERIALS is one of the market's least loved sectors. Its constituents lack growth, are vulnerable to economic swings, and tend to suffer from exchange rate fluctuations. So you would think a company with decent growth prospects like BPB would be popular. After all, demand for plasterboard is growing steadily and there are plenty of opportunities in emerging markets where it is hardly used at all.

But there's little joy being in a growing industry when capacity is expanding just as quickly. That's BPB's problem in France and Germany, where prices have fallen sharply. What's more, the group suffered from the strong pound, which wiped pounds 18m off pre-tax profits.

To be fair, BPB is tackling its problems in paper by slashing costs and selling plant. Exceptional items, which also included buying back convertible bonds at a premium of pounds 14.9m, amounted to pounds 41.2m last year, pulling profits down to pounds 134.6m from pounds 189.1m in the previous 12 months.

Jean-Pierre Cuny, BPB's ebullient chief executive, is playing a long- term game by investing in new plants in eastern Europe and South America. He is also targeting acquisitions and reckons BPB's gearing could comfortably rise above 50 per cent from just 10 per cent at the year end. The group will ask for permission to buy back shares, but reckons it has better uses for its cash.

BPB shares have taken a tumble from their high of 440p last month, and they shed another 12.75p to 367p yesterday. Broker SG Securities has cut its profit forecast to pounds 189m, which puts the shares on a forward multiple of 15. If you want exposure to building materials, BPB is a good long- term bet.