A fall in pre-tax profits for the six months to the end of May saw international performance materials group Low & Bonar (LWB) slip 1.2% to 66.5p but there are some bright spots behind this underwhelming headline performance.

A decision to increase the interim dividend by 6.3% to 0.85p shows a level of confidence in the full-year figures that a 23% decline in first half pre-tax profitability wouldn't ordinarily engender.

Pre-tax income at the £191.5 million cap fell to £4 million from £6.3 million in the same period last year. Meanwhile, revenues at the group rose to £184.1 million in the six months to the end of May - up from £183.9 million last time.

While the interims contained few upsets - the group's pre-close statement on 6 July had already primed investors for the likelihood of a less than stellar performance from its civil engineering and building products division after a harsh European winter - investors might do well to focus on the four out of six non-weather impacted businesses which have continued to improve.

The Civil Engineering and Building Products divisions, which account for 40% of group sales, saw an 8% decline in sales during the first half despite a strong end to the period when weather patterns reverted to seasonal norms. The last six weeks of the reporting period saw group sales per working day 7% higher than the corresponding period last year. Low & Bonar says this momentum has continued.

Net debt at the group edged up to £106.8 million from £82.6 million at the start of the year. This was due in part at least to securing bridging finance to the Saudi Arabian joint venture of £6.1 million and additional inventories due to lower first half sales.

Return on capital also tapered in the first half, declining to 14.1% on an annualised basis compared to 16.5% in the same period last year. Management nevertheless expects return on capital to be closer to 17% by year's end.

Analyst Howard Seymour at Numis retains the broker's full-year estimates, continuing to see Low & Bonar as an attractive mix of macro growth and self-help drivers, which he believes is not reflected in the share price. Numis rates the stock a 'buy' and has set a target price of 78p.

The outlook for the group going forward is encouraging. On the macroeconomic front, the release (2 July) of the UK construction Purchasing Managers' Index (PMI) revealed a print of 51.0, the second month running that the indicator has registered in positive territory above the 50-mark.

The group expects to enter the second half with the traditionally stronger tailwinds of robust sales momentum helping to bring the group's full year forecasts back into line.

Issue Date: 04 Jul 2013