Fool's Eye View

[ June 30, 2000 ]

Tomkins Calls The Shots

By Christopher Spink (TMFEagle)

Great Titchfield Street, London -- Companies that like to keep a low profile often release their financial results on a Friday. Investors and the financial community in general tend to have other things on their mind then as they wind down for the weekend.

Diversified conglomerate Tomkins (LSE: TOMK) has given investors a rough ride lately. It has lost about a third of its value over the last year. Impatient shareholders have pointed accusing fingers at group supremo Greg Hutchings.

In reality many reckon Tomkins is a dinosaur, the last surviving conglomerate encompassing many different businesses, from making bread, cakes and biscuits through its Rank Hovis MacDougall arm to construction and industrial engineering as well as Smith & Wesson handgun manufacture.

The trouble is that none of these sectors are particularly in favour at the moment. So most people are very dismissive of the group overall and hope Hutchings will tidy things up, or else resign and let someone else in to do the job for him.

Hutchings hits back at critics

Not surprisingly then Tomkins has joined the Friday club and rushed out its results this morning. Profits before tax and exceptional charges rose 5.7% to £526m on sales up 5.1% to £5.62b. This allowed the group to lift the final dividend to 12.85p per share, making a total payment of 17.45p.

This means the shares, which rose 6p, or 3%, to 207p this morning, now offer a very impressive dividend yield of 8.4%. Why on earth then are shareholders complaining about Tomkins' performance? Sure, the company is unfashionable. But Hutchings runs his motley collection of businesses impressively well.

A quick look at the balance sheet shows the group has net borrowings of £802m, meaning gearing is quite high at 40%. Perhaps, Hutchings should focus on clearing that? However, money should flow in from the imminent completion of the sale of several of the food manufacturing businesses.

However, Hutchings has made some cosmetic changes. He will become chief executive officer and allow a non-executive director, David Newlands step up and chair board meetings. But it's quite obvious that Hutchings is still in control. And with decent results like today's that should be a good thing.

Market catwalk

Followers of the stock market will know that it resembles a vacuous fashion show most of the time. Decent, solid businesses get sidelined. In the first three months of the year investors only had eyes for technology, telecom and media companies. Everything else was obliterated and ignored.

Since March though and Nasdaq's decline, some of the better businesses, which actually make money and return it to shareholders are starting to be recognised again. A full retro revival has yet to happen. I doubt whether we will see seventies conglomerates return in a big way.

But just as flares can be seen on the High Street again, so Tomkins might rise in value soon and possibly make its way back into that exclusive club -- the FTSE 100.

Where Next?

February's Fool's Eye View on Tomkins: Pass the Tommy K
Put your own critical view and follow the fashionable chat on the Fool's Eye View discussion board.
Tread down the Tomkins trail on the company's discussion board.