Bottom Line: Inchcape suffers Eastern trauma

INCHCAPE'S Eastern promise turned sour in the second half of 1993 as Japan went from bad to worse, China cracked down with austerity measures to cool its overheating economy and the high yen took large lumps out of vehicle import distribution margins.

Such developments scarcely qualify as one of the mysteries of the Orient. In essence, the picture painted by Inchcape is not markedly different from the outlook it sketched at the halfway stage last September and filled in more clearly in the 'close season'.

The 1993 pre-tax profits of pounds 263.3m, before exceptional items, were in the middle of the analysts' forecast range rather than below the bottom. But just as six months ago when the stock market took fright at Far Eastern developments, Inchcape shares, egged on by a cautious further assessment of business prospects for 1994, reacted sharply to crash by 37p to 515p, which is well below where they were at the interim stage.

Second-half profits, excluding property contributions, actually fell in the second half. This reflected the twin painful effects of a downturn in Continental European car markets and a rising yen that made Japanese cars more costly to import and distribute.

The resulting sharp setback in motor distribution offset sparkling figures from motor retail boosted by an integrated Tozer Kemsley in the UK.

On the swings and roundabouts, further good progress in services, up 18 per cent in constant currencies, was countered by a poor performance in marketing where Japan, which fell into losses, and Malaysia let the side down.

The first half of 1994 will be down and for the year Inchape, given the loss of its Chinese Toyota joint venture, will do well to match 1993's out-turn. Despite sustained underperformance, a p/e of 16 is high when earnings growth is non-existent and a yield of 3.6 per cent low if dividends grow by 5 per cent at best.