Profit takers strike at Low and Bonar

Profit taking was in evidence after industrial fabric maker Low and Bonar's interim results were merely in line with expectations.

Low & Bonar's shares have been on a good run since the end of May when the company said first half sales and profits would be comfortably ahead of last year.

The company delivered on that promise but the market was evidently hoping for something a bit more spectacular as the shares had fallen 5.5p to 57.5p by the end of the lunch time session, and not even a 14% hike in the interim dividend from 7p to 8p could prevent the fall.

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Revenue in the six months to the end of May rose to £183.9m from £182.6m (or £176.9m on a constant currency basis) in the corresponding period 12 months earlier.

Profit before tax, amortisation and one-off items jumped to £9.6m from £7.9m the year before, but statutory profit before tax tumbled to £6.3m from £11.2m, as this time round the group had exceptional debits of £3.3m against exceptional credits last year of £3.3m.

The group conceded that market conditions had become more difficult, especially in Europe but also in Asia. On the plus side, North American activity benefited from the first signs of a pick-up in the housing market.

Sales in Flooring, Building Products and Civil Engineering - the group's target growth markets - were vibrant but growth was more subdued in the Industrial and Transport markets while, as anticipated, sales in the Leisure segment remained very weak as the artificial grass market continued to contract.

Operating margins improved from 6.5% to 6.9% in the half year despite, as broker Peel Hunt noted, the group making a significant investment in future growth.

"Lower raw material prices should benefit H2 [second half of the fiscal year] but the weakening euro is a major headwind," Peel Hunt suggested.

Net debt at the end of May had increased to £98.7m from £85.3m six months earlier, reflecting the group's acquisition of Xero Flor and its investment in its Saudi Arabian joint venture, as well as increased capital expenditure to support future growth.

"These results demonstrate the quality of our business," claimed company Chairman, Martin Flower.

"We expect macroeconomic conditions to remain challenging, particularly in Europe. However, with the benefit of ongoing internal growth initiatives and lower raw material polymer prices, we remain confident that full year results will be in line with expectations," Flower added.

That seemed to tie in with Peel Hunt's projections. The broker is leaving its profit before tax forecast for the current financial year unchanged at £25.2m, though next year's forecast has been trimmed from £28.5m to £27.0m.

JH