Williams paints brighter picture

Half-time figures from Williams Holdings were bang in line with expectations, but that didn't stop the shares rising 9p to 324p as investors expressed relief that the company had not joined the rest of the building sector and issued a profits warning.

Williams presents itself as a balanced group spread across building products, security and fire protection, but if you clump Yale security products in with the rest of its paints, sealants and wood preservers, 70 per cent of the group's profits comes from building. In that context, generating profits growth of 20 per cent to pounds 103.1m from sales 18 per cent higher at pounds 765.6m was an impressive performance.

Williams' building products operations in the UK and North America are plainly up against it. Operating margins in the European businesses fell 2.2 per cent thanks to acquisitions of companies with a lower return on sales and a squeeze from the DIY sheds as demand dropped away in the second quarter. A similar fall-off hit the US operation.

The company may be operating in some difficult markets but it has several advantages. It is extremely well-run. Profits from security products (up 20 per cent), for example, benefited from continuing efficiency improvements at Corbin Russwin, last year's US lock-making acquisition.

It also has a good geographical spread. Yale Italy had a good half year thanks to the increasing competitiveness of the lira, which boosted its ability to export to the Far East and Latin America. The next challenge will be to build a sizeable presence in the Far East, where Williams' leading brands are potential winners and its current exposure negligible.

Finally, Williams is in good shape financially, with gearing of a comfortable 21 per cent giving the company the fire power for at least another pounds 200m of acquisitions before needing to trouble shareholders for more cash.

All that will come as scant comfort to investors, who have seen their shares slip from a high of 413p in January 1994. They have since underperformed the market by more than a fifth. First they fell foul of the market's distrust of conglomerates - a tag Williams has had to work hard to shed - and more recently they have suffered from association with companies like Caradon, which warned on profits earlier this week.

Having drifted so far, Williams has lost its premium rating, which is fair enough given the company's insistence that it is now simply a tightly managed industrial holding company with a steady but unexciting bolt-on acquisition programme. On forecast profits of pounds 225m this year and pounds 265m next, the shares stand on a 1996 p/e of 13. About right.