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Your support makes all the difference.Results from BPB Industries yesterday showed clearly the extent of the prize that Europe's leading plasterboard manufacturer missed in failing to win its pounds 700m bid for National Gypsum of the US earlier this year. Prices in the North American market, by far the largest in the world, soared 50 per cent last year and BPB was able to lift its volumes there 20 per cent by supplying over the border from its Canadian subsidiary.
Although that helped margins and profits in Canada to double, the estimated pounds 10m or so contribution to BPB's bottom line from North America remains paltry in the context of group pre-tax profits of pounds 163m in the year to March. Without a direct presence in the US market, returns from North America are destined to remain small, but while US Gypsum, the market leader, is too big for BPB to swallow and aggressive expansion is ruled out lest it sparks a price war, BPB must bide its time before returning to the fray.
In the meantime, BPB's chief executive, Jean-Pierre Cuny, is doing all the right things, even though a cautious statement accompanying the results sent the shares down 7p to 311p yesterday.
A 150 per cent rise in waste paper prices over the year to March is hitting margins in the small paper and packaging side. But underlying profits still rose 23 per cent to pounds 15.1m last year and Mr Cuny is confident that price increases will win back the lost margins.
More seriously, a 5 per cent fall in German plasterboard prices last year reawakened memories of the cut-throat price war in the early 1990s. The problem may be more apparent than real, given that a subsequent 10 per cent price rise in March seems to be sticking and prices in the rest of Europe have held steady. Indeed, plasterboard remains one of the few areas of growth in the building materials market worldwide.
Volumes rose 15 per cent to a new record last year, driving profits from building materials 27 per cent up to pounds 153m, before exceptional charges. Any frustration in the US should be offset in the short term by prospects in developing markets from Poland, through Spain to Brazil. In the long run, it needs to increase its clout in North America lest a European rival like Lafarge or Knauf steal a march on it there. Profits of about pounds 193m this year would put the shares onto a prospective p/e ratio of 12 and suggest they would be worth picking up on any weakness.
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