More than 3.5 million shares in Powerscreen, the Northern Ireland based engineering group, changed hands in London yesterday as the markets continued to respond to Tuesday's surprise disclosure of irregularities in one of its divisions.
The share price closing marginally ahead on the day with a 26p gain in London to 280p sterling. In Dublin, the shares ended on 262p sterling, up 12p on the day.
The exceptionally high turnover in London represents almost four per cent of the shares in issue and shows that it was not confined to small investors looking to get out of Powerscreen, but also involved substantial institutional trading in the shares. There was also heavy trading in Dublin.
Dealers believe that the Powerscreen share price should stabilise around current levels, although some institutional shareholders sounded a note of warning about the need to restore confidence in Powerscreen management. "This management has done very well over the past few years and I don't think that they can be written off simply on the basis of this black hole," commented one fund manager.
Another institutional shareholder told The Irish Times, however, that the prospect of a takeover bid is the main factor underpinning the share price, and that at its current valuation, Powerscreen must be seen as ripe for a bid. Various potential bidders have been mentioned, including international giants such as JCB, Ingerosll Rand, Caterpillar as well as John Deere, one if the biggest customers of Matbro, the Powerscreen subsidiary where the financial irregularities.
While Powerscreen has already indicated that the write-off - arising from the irregularities at its Matbro subsidiary - will result in a £10 million sterling loss for the year to the end of next March. But analysts have also radically revised down their 1999 forecasts and some London analysts believe that the group will report profits of no more than £33 million in 1999, compared to previous estimates between £45 million and £55 million.
This £33 million profit forecast means that Powerscreen is now trading on a prospective price/ earnings multiple of around 8, compared to average 1999 multiples of 12 to 13 for companies in the British engineering sector.
Meanwhile, the Northern Ireland Industrial Development Board (IDB) confirmed yesterday that it had given £2.8 million sterling towards a total investment of £8.7 million in Matbro in 1994. It said this included a promise of 108 jobs.
According to the IDB, Matbro currently employs 208 people. Asked if it was conducting its own investigation into the company the agency said it was "inappropriate" for it to comment on the affairs of a publicly-quoted group.
However, it said that it took the normal steps to ensure that the criteria were met and claim conditions properly satisfied and it will continue to "monitor closely" to ensure that public funds are properly protected.
Attempts to contact executives in Powerscreen proved unsuccessful yesterday.
