The Investment column: Low & Bonar wraps up profits

Low & Bonar, the packaging group, stands out in a sector strewn with high-profile casualties of the volatile raw material price cycle. While investors in Rexam, De La Rue and Arjo Wiggins nurse losses incurred from a series of profit warnings, shares in the Dundee-based packager have continued an impressive run that has seen them almost quadruple in value in the last five years.

New chief executive Jim Heilig, who succeeded Jim Leng in October, can justifiably boast that latest interim results "underline our success in concentrating on profitable niches within our packaging, plastics and specialist materials business and our strategy of balancing our group over a number of segments to minimize cyclicality". A broad geographic mix between Europe and north America has also helped.

In the six months to May, pre-tax profits edged 6 per cent higher to pounds 26.2m on sales 4 per cent down at pounds 211m, depressed by lower raw material costs. More significantly, margins continued on their upward path, rising from 11.7 per cent to 13 per cent. Earnings per share rose by a tenth to 18.43p, helped by the purchase last year of a 21 per cent US minority holding.

The results were struck in what Mr Heilig terms "challenging market conditions". In general, Low & Bonar was under pressure to pass on lower raw material prices. In particular, it had a tough time in the US, where packaging margins slipped as exceptionally bad winter weather held back cement sack sales to the construction industry.

Given a strong balance sheet - gearing is just 10 per cent - acquisitions are very much on Mr Heilig's mind. His appetite for expanding into higher- margin plastic and speciality materials businesses remains, despite Bonar's failure to buy Rotonics, a US plastic mouldings supplier, for $31m earlier this year. The deal would have doubled US earnings, but fell through when Rotonics claimed to have found a third party willing to pay more. Mr Heilig has yet to establish who the mystery bidder was and lawyers are on the case.

Francesca Raleigh at broker Panmure Gordon sticks with her full-year forecast of pounds 57m, implying a sub-market multiple of 13, with the shares down 3p at 529p. A core holding in the sector.