Meyer moves into recovery phase

It has been a long time coming, but the pounds 23m restructuring at Meyer International, the timber importer and building materials group, is finally paying off. Though turnover at pounds 1.14bn was 7 per cent down in the year to March, operating profits advanced 12 per cent to pounds 47.4m and pre-tax profits were 21 per cent ahead at pounds 45.4m. Underlying earnings per share rose 18 per cent to 23.3p. The market was further cheered by positive noises on trading in the first few months of this year and the group's shares rose 16p to 431p.

Meyer is still getting no real help from the housing market, which started picking up in the second half of last year and which typically takes six months to filter through to the business. But rising softwood prices are benefiting the group. Having crashed by around 35 per cent last year, prices bounced around 44 per cent in the year. That, and a shift away from planks to more finished items like window frames, left operating profits in the timber division up over 100 per cent to pounds 10.3m on flatish sales of pounds 208m.

The benefits of the revamp of the 197 Jewson builder's merchant outlets have still to come through. Sales from that division rose just 2 per cent to pounds 443m and profits dropped pounds 3m to pounds 22m, largely as a result of disruption from refurbishment. Alan Peterson, who will become chief executive after John Dobby retires, said the group lost pounds 16m in sales volume over eight weeks as the shops were re-kitted. Meyer is rightly trying to add value to nuts, bolts and nails. The group has Dulux paint centres in 47 of its shops and hires out equipment like generators and drills in 120. Supplying bathrooms and kitchens should also be a money spinner.

Meyer is also talking confidently about expanding - buying family-run merchants and building its stronger US side. Including net cash, the group could spend pounds 115m and still be comfortably geared at 30 per cent.

House brokers BZW are forecasting profits of pounds 56m for the current financial year, which would put the shares on 15 times forward earnings. That doesn't look too expensive, given the potential for the housing market and, more importantly, the repair and maintenance market to lend a helping hand. Buy for recovery.