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Shares punge after profit warning at Low & Bonar

Steve Good of Low and Bonar
Steve Good of Low and Bonar

Stock in Low & Bonar plunged yesterday as the performance materials group issued a profits warning over lacklustre trading in its civil engineering arm.

Shares fell by more than 18% yesterday – wiping almost £50 million off the company’s market value – as investors dumped stock following the trading alert.

The warning came on the last working day of chief executive Steve Good’s five-year stint at the helm of the historic business.

New boss Brett Simpson – who has joined the firm from Belgium-based LBC Tank terminals – is due to take up the reins on a full-time basis on Monday after completing a handover period with his predecessor.

That job was made significantly tougher yesterday after the company said its prospects had been hit by a downturn in demand for its civil engineering products.

It is now forecasting pre-tax profits for 2014 of between £25.3 million and £26.5m, well below City analyst forecasts of between £28.6m and £29.6m made following an upbeat trading update in mid-July.

“The group has experienced a drop in demand across its European civil engineering markets reflecting a slowdown in construction activity and the continuing difficult economic and geopolitical climate in Europe,” Low & Bonar said in a statement.

“This sector represents approximately a quarter of the group’s sales. Civil engineering sales grew by 4% in the first half on a like for like basis.

“However, taking the reduction experienced in Q3 (third quarter) into account, the group anticipates sales in this sector will be flat for the year as a whole.

“Whilst a material improvement is not expected for the remainder of the year, the group believes that the strong fundamentals of this sector remain in place.

“Separately, as outlined in July, the group’s civil engineering joint venture in Saudi Arabia has continued to suffer a slower than expected order intake as a result of a delay in obtaining a key product certification.

“A loss of at least £1m is now anticipated for 2014.

“The group’s other businesses continue to perform well and are in line with the board’s expectations.

“However, recognising the lower demand in the civil engineering sector, the board anticipates that profit before tax, amortisation and non-recurring items for this year will be in a range of £25.3m, last year’s result, to £26.5m.”

Low & Bonar started out life in 1903 as a Dundee jute merchant and has since grown into an international concern with a workforce of more than 2,000.

It continues to employ around 120 people at its yarns plant at Caldrum Works in Dundee, a facility which produces artificial grass surfaces for sports pitches and a range of carpet backings.

Analysts Jon Lienard and James Tetley of N1 Singer moved their recommendation to hold yesterday after saying Ukraine’s conflict with Russia had hit the firm’s markets in Eastern Europe served by recent acquisition Texiplast.

They said: “This is a disappointing reminder of the cylicality of some of Low & Bonar’s end markets at a point in the company’s progresss when several periods of good growth were expected.”

Howard Seymour of Numis said the profit warning was “clearly disappointing” and moved to cut dividend forecast to a flat payout for the year.

Shares in Low & Bonar closed the day down 18.7% at 66p following yesterday’s trading session.