Timber puts axe to Meyer profit

Investment Column

The Meyer profits warning is becoming an annual occurrence, so the market's relatively sanguine response to yesterday's statement - despite some chunky downgrades to forecasts - was no surprise.

The shares, which reached 554p at the height of last year's optimism, shed another 22p to close at 301p.

The market should have been warned. Meyer's full-year results announcement in June painted a gloomy picture that was only confirmed by the statement to shareholders at July's annual meeting.

Indeed, it would be more surprising if the market had not already taken on board most of the bad news coming out of the construction sector.

Meyer's admission that its timber-importing arm was under the cosh, thanks to falling softwood prices, was just the latest in a catalogue of woe.

Meyer's problem is that trading timber is an inherently volatile business. When prices are rising, normal operating margins are boosted by stock profits, and profits soar. When prices fall, the reversal of fortunes can be alarming.

According to the company, full-year profits are likely to fall "some way short" of those achieved in the year to March, with the problems in timber exacerbated by the continuing fall-out from the builders' strike in Holland in May, which hit the PontMeyer merchanting business.

Those problems would not matter so much if the core Jewson merchanting operation were not also suffering. A revolving-door personnel policy has created, some observers believe, a dearth of real merchanting experience in a division struggling to cope with sagging demand as the housing market stagnates. The net margin improvements pointed to yesterday are from a pretty unimpressive base.

Optimists point to the rationalisation of the industry, which has recently seen Erith snapped up by Graham, and AAH's merchanting arm absorbed into Travis Perkins. If Meyer's shares fall any further, the argu-ment goes, a bigger rival such as CRH or Wolseley will snap the company up.

An understandable hope, especially given the mean ratio of Meyer's market value to its sales, but in the circumstances probably little more than wishful thinking; a pounds 400m-plus takeover would stretch even the largest members of the sector. Certainly on the basis of fundamentals, there are few attractions - profits of pounds 54m in the year to March 1997 put the shares on a prospective price-earnings ratio of 10.6. That is not cheap enough to make the shares a buy and, with an unexceptional yield, the shares are likely to remain dull.

High spirits at Macallan

Macallan-Glenlivet has held its own during the last few difficult years of recession in the whisky industry. In the face of over-capacity and weak demand, the Banffshire distiller turned in profits of pounds 6.69m last year, almost exactly where they were in 1990.

That is testimony to the wisdom of the decision in 1980 to concentrate on the company's own single malt, The Macallan - which now represents close to two-thirds of the business - at the expense of lower-margin fillings sold to whisky blenders. But even after five years of struggling against a tough market, the signs are that relief may still be a little way off yet.

Interim figures from Macallan yesterday showed pre-tax profits rising a healthy 14 per cent to pounds 2.93m, and a 15 per cent increase in the halfway dividend to 0.47p, continues an unbroken record of such rises since the company's last rights issue in 1988.

Macallan did well in the United States, with older and more expensive versions of its eponymous malt increasing volumes. Europe, however, remains very competitive and volumes there were flat, while fillings were down slightly.

The company retains a traditional Scottish caution about the second half, warning that the mix may be less favourable and that the key Christmas period is likely to be difficult.

Given the strength of The Macallan, however, it is well placed to weather the next year without having to cut prices and benefit from the upturn.

If the company is to be believed, that could come at the end of next year or in early 1997, when the recent down-trend in fillings could start to reverse.

So after a 57 per cent underperformance against the market over the past five years, the time may be approaching to buy the shares, unchanged at 215p yesterday.

If profits rise to pounds 7.6m this year, the shares are not obviously cheap on a multiple of over 40, but with large chunks of the equity held by Remy Cointreau of France and Suntory of Japan, an eventual bid from one or the other looks an increasingly likely outcome.

COMPANY RESULTS

Turnover pounds Pre-tax pounds EPS Dividend

Photo-Me International (F) 193m (172m) 14.5m (13.9m) 11.68p (10.26p) 5p (4.8p)

Arlen (I) 14.6m (15.1m) 1.53m (1.21m) 1.4p (1.1p) 0.2p (nil)

Severfield-Reeve (I) 19.3m (13.0m) 0.89m (0.31m) 3.87p (1.27p) 1p (0.5p)

British Data Management (F) 17.7m (16.8m) 2.9m (3m) 3.8p (9.8p) 5.4p (5.4p)

UCM (I) 17.6m (14.2m) 1.45m (1.13m) 4.2p (4.1p) 1.5p (-)

Aegis (I) 1.67m (1.45m) 16.3m (14.2m) 1.4p (1.1p) nil (nil)

Headlam (I) 71.5m (62.7m) 3.12m (2.15m) 5.2p (3.8p) 1.2p (1p)

Keller (I) 110m (89m) 4.3m (3m) 4.4p (3.7p) 1.75p(0.5p)

Wembley (I) 54.4m (51.5m) 2.88m (0.46m) -0.3p (4.4p) nil (nil)

Macallan-Glenlivet (I) 7.70m (7.14m) 2.93m (2.58m) 1.96p (1.57p) 0.47p(0.41p)

(F) - Final (I) - Interim