Upbeat Siebe defies cautious forecasts

Britain’s No1 buoyant despite setbacks for controls industry

As the shares of Siebe, Britain’s largest engineering company, hovered close to an all-time peak this week, City watchers were divided over how high they will go.

Some analysts rate them high enough, while others say they will again outperform the stock market as a whole in 1997.

Following Siebe’s acquisition of Satchwell Controls from GEC, its shares leapt to nearly 21 times the 51.5p of earnings the City expects in the current year to April.

While Siebe is one of the UK’s biggest success stories, this is a heady price in a sector where shares of the average player sell on just 14 times earnings.

The consensus forecast this year is for profits of £420million pre-tax (against £331million). Last month Siebe reported a first-half £190.4million and earnings of 24p a share (19.2p).

Current market price projects a dividend yield of less than 2% against a stock market average of 4%. `Growth prospects are really all in the price of the share. It looks very fully valued, ‘ said one analyst.

But Michael Blogg, of stockbroker Charterhouse Tilney, says investors will always pay a premium for quality. `There are other engineering stocks around that may seem better value, but they aren’t of Siebe’s quality,’ he said.

While many analysts viewed the acquisition of Satchwell – Britain’s major name in building automation systems – as a good strategic move, some were concerned at the price paid: £80million, or 24 times the business’s annual earnings.

But Siebe says the City is working on Satchwell figures nine months of date. `We never over-pay for businesses,’ a spokesman said.

Siebe’s controls business accounts for around 40% of its operating profits, so the acquisition is seen as good news by analysts concerned at the apparent slowdown in the important North American petrochemical market. Firms have been cutting back on orders following a spate of mergers.

World sales in the controls industry have also slowed from 6% two years ago to around 3% in 1996. But Siebe contends it is gaining market share, and points to £150million worth of new orders, one for a petro-chemical plant.

Sales at Foxboro, Siebe’s US commercial controls arm, were up 30% in 1996. But with competition hotting up, there are fears price-cutting could hit margins.

In a slower market Siebe came just short, at 8.1%, of first half target of a 10% growth in controls sales. But the firm says it is not perturbed. `We are not changing targets. The underlying indicators are good. It’s a lumpy business, and a few big orders make all the difference,’ said a spokesman.

Blogg sees Siebe in a strong position to add still more to its empire. `It generates a load of cash, so it has both the money and the strong paper to go for what it wants,’ he said.