Account gamble
A quick spin with Dunlop
John Bull
By early next month I expect that Easter eggs should have been fully digested and the stockmarket will have shaken off any post-holiday malaise. I also hope that a good reception will be given to the report from Dunlop about May 10.
Now Dunlop, the largest UK tyre group, has had a rough ride over the last year following its merger with Pirelli. This has been fully reflected by the drop in the share price from 210p to a low of 86p in twelve months. Yet much of the uncertainty is now out of the way, with the extent of the damage caused by the Pirelli union announced in January. It was then stated that Dunlop would absolve itself from any further responsibility for Industrie Pirelli until profits were restored. Pirelli, in fact, made losses in 1971 of £18.6m and losses in 1972 could well be as high as £22m. Dunlop has had to make a provision from reserves for the whole of its own E42m investment representing the book value of the 49 per cent holding in Pirelli.
As bad as this news was the chairman, Sir Reay Geddes' comment that the continuing losses of Pirelli would no longer affect Dunlop's results and that Dunlop had no further financial commitment to that company sent the shares up by 8p to 104p. The current price is 102p.
It will also be noted that Dunlop still gets the geographic advantages of the Pirelli merger which is particularly relevant with competition in the industry keen and groups such as Michelin actively looking for expansion. So I feel that with any more encouraging news and the announcement (hopefully) of a maintained divi dend, the shares backed by assets of about 125p should prove a good holding, in the short-term at least. The longer-term investor will have to take into consideration both the trouble in the industry and capital problems.
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