James Crean still not living up to its promise

JAMES Crean equals lethargy? The shares, appropriately, moved hardly at all last week. But that was in sharp contrast to the positive market reaction, last month, to the declaration by James Crean that it has almost completed the sale of Inishtech, its print and packaging subsidiary, and other non-core parts of the group. Going on past performance, it looks like a little more of ring-a-ring-a-rosy.

Yet the bland statement that it is know in the final stages of negotiation in relation to a number of disposals" was sufficient to push the shares up 20p over a two week period. That removed it from the dubious distinction of being among the worst rated shares, though the shares have since come back a bit.

Crean added the rider that "while it is not possible to comment on these negotiations at this time because of commercial sensitivity, an announcement will be made as the restructuring process is completed". But those comments would not even illuminate a firefly.

Investors seem to have forgotten that, in 1994/5, it took Crean 13 months of pondering about the merits of making a bid for the remaining 29 per cent of Inishtech before it decided net to go ahead. But it rapidly changed its mind when an acquisitive group (Clondalkin) expressed an interest in acquiring Inishtech.

And it is now a year since it mopped up the remaining minority shares in Inishtech with the intention of selling off the whole group. The target date for the sale was the end of 1996, which it has now missed by four months.

According to informed sources (these could not be confirmed with the company as it has not returned calls), Crean was nearer to a deal six weeks ago than it is today. It appears that it had received indicative valuations of £80 million to £90 million from three companies for the Inishtech companies, or a little less than the equivalent it paid for the minority 29 per cent stake.

Instead of coming to a conclusion, it deferred a decision and, according to the unconfirmed reports, Crean told the companies that it "may be back". Apparently Crean decided it first wanted to sell three companies Staples Disposals, the British disposable hygiene products company Douthwaite Florists and Kartoncraft.

The latter is likely to be the subject of a management buy out. That would leave six companies Bell and Bain, Meridian Printing, Droyhurst, Plasboard Plastics, Label Art and Foam Plus n print and packaging which would be very saleable.

There is now the bizarre suggestion that Crean may be having second thoughts about the sale of printing and packaging businesses. Instead, it would sell the electrical side. This would raise serious doubts about its declared strategy to retain all its core businesses, categorised as food and electrical, and to sell the print and packaging side.

On business grounds there must be pressure to sell the electrical business because it is doing so badly. But how could that tie in with the decision to expand this business a year ago, with the purchase of the OLC electrical wholesaling business in Britain for £14.3 million? That was meant to fit snugly with its Wade business, but the performance of this division has been pretty dismal.

The figures produced in the preliminary results do not indicate the extent of the adverse trend. These showed static operating profits of £2.8 million in 1996. Group operating profits were boosted by £4 million from acquisitions. It looks as if two acquired US printing companies, Meridian and Elite, contributed about £2.6 million. That implies that OLC contributed around £1.4 million.

On that basis, Wade saw its operating profit contract by more than 50 per cent. And Crean got only £1.4 million operating profit from its £14.3 million investment in OLC, making it an expensive purchase. Management changes may improve the position at Wade but there is understood to be a continuing bad trend in the first quarter.

Shareholders will need to know why Crean is stalling the three contenders for the print and packaging division. And is the group about to change its strategy yet again by selling Wade and retaining the print and packaging division?

Crean has been one of the greatest disappointments over the past decade. It was ranked among the 10 top Irish companies 10 years ago. If it had matched their pace of expansion, it would now be valued at £600 million. Instead, it is valued at a mere £100 million and that is after the £30 million it raised in a rights issue (there was also the same amount in a convertible loan stock).

It appears to have lost its way since it had to write off its investment in IAS, the aircraft leasing company, in 1992 at a cost of £32 million. Indecisiveness over the sale of some of its subsidiaries will not change that perception.

Indeed, it will reinforce it. What investors need are bold decisive and quick decisions in line with a clear strategy for the group's future.