Plessey Co Plc’s start of year optimism (CI No 691) has proved to be ill-founded. Half time figures, out yesterday, showed operating profits down 29.3% at UKP56.4m. To make matters worse, chairman Sir John Clark, which had been forecasting a second half recovery after a dull first half, is now warning that the pre-tax out-turn for the whole year will be below last time’s UKP184.2m. In any case, the pre-tax figures will be boosted by investment income not included in operating profit. Plessey has made a substantial profit on its investment activity over the last few weeks. Interim operating profits in the Telecommunications division were down by a staggering 46.5% at UKP20.4m. But, with the defence business, the Electronic Systems division, off 20.8% at UKP17.1m, and Aerospace and Engineering, and Microelectronics and Components both experiencing pressure on margins, producing operating profits of UKP8.3m and UKP2.8m, the only bright spot in the figures was the order book up 5.9% on the position as at April 3 – Plessey seems to be back to its old trick of trying to make the order book look better by comparing it with the previous half rather than with the figure for this time a year ago. Sir John and his team, however, continue to view the prospects with favour. The second half will include Plessey’s share – smaller than expected – of British Telecom’s latest tranche of public switch orders. It will also see telecommunications revenues from recent orders for payphones and Stromberg-Carlson switches, the latter from two Baby Bells, and defence revenues from radar, and three overseas military communications orders. Beyond that, Plessey seems to be relying on the pooling of telecomms resources with GEC and other joint ventures, such as those with Racal in Orbitel, and with Telenet, to boost earnings. There is also the prospect of acquisitions using some of the UKP235m cash hoard on which Plessey is sitting. The problem with that is Plessey’s apparent intention to buy defence contractors in the US. This is not a strategy to make short-term money nor to win the hearts and minds of the City at a time when the dollar is weakening and US defence spending looks likely to be cut back. Sir John Clark is also not ruling out the possibility of buying a stake in Inmos from Thorn EMI. Such a move would be disastrous in the eyes of the City. Sir John did say, however, that Inmos was only one of a number of chip manufacturers with which Plessey had been talking. Finance director Stephen Walls told journalists yesterday that the full year dividend would be up on last year, although an hour earlier City analysts had been led to believe that at best it would be unchanged on last year’s figure. Even with a yield of 7% and a prospective price earnings ratio of under 8, the shares at 132 pence, down 13 pence on the day, will not look attractive until Plessey convinces critics that it has a genuine strategy for the way ahead.
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