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MARKET COMMENT
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SSL International (LSE: SSL) should have a lot going for it. The company's brands, which include Durex and Scholl, are market leaders in consumer healthcare markets. In theory at least, popular makes of condoms and foot care treatments ought to offer decent shareholder returns. Yet SSL continues to disappoint. Today saw the company confess to a decrease in annual sales and warn of lower than expected operating margins. The shares responded by falling 150p (25.8%) to 431p. Today's statement follows an all too regular flow of bad news from SSL. Ever since Seton Healthcare, Scholl and London International effectively embarked on a three-way merger during 1998 and 1999, problems have dogged the group. Alongside costly restructuring charges and exceptional items, SSL's books were also rocked by an accounting scandal that resulted in a boardroom clearout. It seems even fresh management talent can't rid SSL of its problems. Today's update stated that sales for the past year were £595m, some 4% lower than the year before. Furthermore, operating margins for the current year are now expected to be between 13-14%, a range lower than the previous guidance of 15-16%. Needless to say, more one-off costs are expected as SSL continues to discover further operational savings. Although SSL's accounts are a mess, the attraction to the group's business is clear. SSL's products are repeat purchase, recession proof and largely price insensitive. It's difficult to see the company go under when it has, for instance, an 89% share of the UK condom market. With such an enticing underlying business, it's a matter of when, and not if, SSL finally turns around. SSL expects underlying sales in the current year to grow in the mid-single digits. Assuming sales growth of 5%, an operating margin of 13.5%, interest payments of £22m and tax at 30%, pre-exceptional earnings per share of 23p could be expected this year. Valued on a price to earnings ratio of 15, the shares would be worth 345p. At the current 431p price, any thoughts of investing for a turnaround appear premature at the moment.