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Hot returns at Vesuvius

RESULTS: Vesuvius has begun rebuilding margins, but progress is likely to be slower in 2014
March 5, 2014

Vesuvius (VSVS) received little help from global steel markets last year, so the molten metal engineer had to help itself. Revenue was flat, yet a 100 basis-point increase in the underlying margin to 9.3 per cent sent adjusted pre-tax profits, which exclude hefty restructuring and demerger costs in 2012, up 14 per cent to £125m. Management expects flat markets this year, too, but reminds us it is only a third of the way through a drive to restore returns to its recent peak above 11 per cent.

IC TIP: Sell at 461p

Clearly, shutting the loss-making solar-crucibles business helped margins at the foundry division - which supplies filters, pouring ladles and crucibles - swell by 170 basis points to 10.4 per cent. Little wonder the unit's underlying operating profit grew 13 per cent to £51.3m, despite lost solar sales and weak demand from the mining sector. An improvement in production of European cars and North American trucks will also help this year.

Margin growth at the larger steel unit was less impressive, but profit still grew by a tenth to £89m. After trimming forecasts for 2014 by £4m to account for stiff currency headwinds, broker Numis Securities expects adjusted pre-tax profit of £128m in 2014, giving adjusted EPS of 32.8p (from 31.9p last year).

VESUVIUS (VSVS)

ORD PRICE:461pMARKET VALUE:£1.3bn
TOUCH:461-462p12-MONTH HIGH:530pLOW: 321p
DIVIDEND YIELD:3.3%PE RATIO:12
NET ASSET VALUE 316p*NET DEBT:29%

Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)†
20111.6914136.021.8
20121.5517-7.014.25
20131.5110438.415
% change-2+505-+5

Ex-div: 23 Apr

Payment: 23 May

*Includes intangible assets of £718m, or 265p per share

†2011 and interim dividend for 2012 relate to Cookson prior to the demerger of Alent