14 March 2003 20:29
THE INVESTMENT COLUMN: Potential bid for Devro make the shares a hold
DEVRO SHARES went from hot to dog in 1998, and have not switched back since. The sausage skins maker suffered a
sudden collapse in prices during the debt crisis in Russia and is only now recovering from its own corporate debt
crisis.
Yesterday's results showed the group back on something like an even keel, having bought back preference shares
that were so close to redemption that they amounted to debt. Cashflow was even strong enough for the group to hike its
final dividend, reflecting a degree of confidence in the future.
Devro is concentrating on making skins from collagen (which means it doesn't get much business in the US, where
they mould their hot dogs in a cellulose skin that gets stripped off before the sausage is sold). These are less of a
commodity than the cellulose products of which it made such a meal in 1998. Taste matters and customers will pay up for
quality. Competition also appears to have eased and trading has started well this year.
Management has kept the reins tight on expenditure, so gearing is now down from 150 per cent at its height to a more
manageable 60 per cent. The shares, which were up 5p to 54p yesterday, now trade on 9 times Investec's forecast of
2003 earnings, and have attracted the interest of one mysterious new shareholder. It might not be sensible to bet that
Acomita, a Swiss outfit, is anything more than a value investor, rather than a potential bidder. But there is no harm in
holding Devro shares.
[UKIR [UK & Ireland Intelligence Wire]] |
RUSSIA IN FACTS
