Billington interims 'resilient'

15th Sep 2009 07:49

An 'increasingly robust' performance from Billington's core structural steel business should ensure full year results are 'considerably better' than originally anticipated, although a weak construction sector leaves it cautious about prospects for 2010.The structural steel and engineering firm grew pre-tax profit by 9.3% to £2.53m in the six months ended 30 June on revenue up 5.3% to £37.4m. Operating profit rose 17.3% to £2.65m.Confidence in getting a 'satisfactory' result for 2009 was fuelled by an increase in operating profits at the structural steel business to £2.7m from £2.6m a year ago, in line with expectations.Projected levels of activity at the unit, which includes Billington Structures, for the second half of the year will make a much greater contribution to 'overhead absorption levels' than had originally expected despite lower margins.'However, selling prices are currently much tighter and margins much reduced, which will impact significantly on results in 2010,' the firm said. Prices currently being achieved to win work are 'not sustainable'.There are also worries about the challenging conditions for the wider construction sector, which Billington accepts will take some time to recover.Executive chairman Peter Hems blames the cautious attitude on the factor. The industry is in unchartered territory, and with elections and possible cuts in public spending looming, everyone's best guessing.Meanwhile, the specialist engineering business is struggling despite smaller losses than last year, forcing management to look at minimising the ongoing costs for the business.The division, Dosco, which makes underground tunnelling equipment for the mining industry, mainly for coal, narrowed first half losses to £83,000 from £339,000, but a weak order book is expected to increase the deficit in the second half.Hems is upbeat though. 'Our established market position has given the group a strong order book which has ensured another resilient half year performance,' he said. 'Whilst the state of the construction sector remains a concern, the strong financial position that we have maintained for the group will support our specialist businesses as we continue to grow.' Broker Brewin Dolphin was impressed with today's numbers. It's upgraded full-year 2009 earnings per share forecasts by 46%, although it's more cautious on 2010 due to limited visibility, pressure on fees and margins, and concerns about public sector spending cuts. Nevertheless, it's raised its recommendation to 'buy' from 'add' and the price target to 210p from 185p to reflect a strong 2009 and growing cash balance. The interim dividend slips to 3.25p a share from 3.75p in 2008 as this year's annual results are expected to be weaker than last time.