Is the honeymoon over for Singleton

THE honeymoon is well and truly over for David Singleton, the management gun hired last year by Clough Ltd to clean up its messy business affairs. Despite being able to claim a hand in returning the local engineer to profitability in the December half, Singleton must have been watching glumly early this month as the Clough share price sank below the level when he joined.

The market, obviously, believes that Clough continues to sail on troubled waters. Since late last year its share price has plunged by 33 per cent from a 12-month high of 81 cents reached on November 12 to recent sales at 54 cents.

Apologists for the alarming slide might argue that most engineering stocks have been hit by changed investor sentiment. True, up to a point. Leighton, the biggest Australian engineering contractor, has fallen by 7 per cent over the same period as the Clough slide. Leighton is down from $11.69 to $10.83. Two smaller engineers, Macmahon and Coffey, have risen fractionally during the period of Clough’s drop.

For Singleton these are dark days, almost as bad as last July when he joined the business which has become synonymous with WA. Back then, Clough was climbing out of a hole that prematurely ended the careers of several senior executives. The primary cause was heavy losses on a handful of dud contracts.

By the time Singleton started work on July 1 there was a whiff of recovery in the air with the Clough share price up to 57 cents after briefly testing the depths of 43 cents in early 2003. The new boy’s honeymoon appears to have lasted exactly 135 days because once the 12-month high of 81 cents was reached on November 12 it has been all downhill.

What ails Clough? The few brokers who analyse the stock think it’s as simple as the need to win more work. Steven Piotrowski from DJ Carmichael reckons Clough management "is making the difficult decisions necessary to improve future performance". But, he adds that "it is going to take at least another 12-months before Clough returns to normal levels of profitability".

As a sign of his faith in Clough, Piotrowski raised his recommendation on the stock from sell to hold in recognition of the share price weakness. It would be rude of Briefcase to point out that after making that call on February 26 (when Clough was priced at 56 cents) the stock slipped to 54 cents.

As well as needing more work (and only profitable work at that) the problems at Clough, from what Briefcase understands, cut much deeper than growing the work on hand from the December 31 level of $511 million. It might also be a case of the internal culture in the business, the unsettling effect of losing senior (and junior) staff and the nagging doubt about whether a business still controlled by the Clough family, with its ties to the Liberal Party, should even be listed when WA looks set for a prolonged period of Labor government.

If the heavy discounting of Clough shares continues for too long there might even be speculation that the ruling family will start to contemplate a buy-back of the business they founded in 1919 and partially floated to the public in 1998 at 76 cents – tempting at the latest share price of 54 cents? Possibly, but so much more if the stock dips back below 50 cents.

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WHILE life gets tougher for the boys (and girls) at Clough another local business, Alliance Finance, is starting to find its feet, but still has a way to go before it makes up for a poor start on the market.

Net profit for the specialist insurance premium funder in the December half was up an impressive 53 per cent to $1.2 million, thanks largely to a 93 cent leap in new lending to $128.7 million.

The market was impressed when the result was announced on February 26, lifting Alliance from 40 cents to a 12-month high of 46 cents. The stock has since slipped back to around 42 cents, which is still a solid improvement on the 31 cents low reached last August.

The trick now for Alliance is to scale the heights of 50 cents, the price at which the company floated a little less than two years ago. Early supporters of the stock have been disappointed by its lack of performance, but will be pleased by the latest result. The key to Alliance is its ability to cash in on high insurance premiums charged by the big general insurers. The Alliance business, which is normally the province of mega-corporations such as GE Capital and Allianz, is to act as a financier for insurance costs – effectively a credit provider charging a 5 per cent fee and generally dealing only with insurance brokers.

Alliance founder and chief executive Martin Kane is confident that the business is set for a period of sustained growth. "For the first time the company has been in a position to fully capitalise on all the infrastructure and processes that have been put in place," he said.

In other words, the capital has been sunk in slick computer systems and market development, now come the benefits of extra revenue without the costs. Perhaps that 50 cents mark is not far away.



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