HEWDEN Stuart lost 12% of its market value yesterday as it disappointed the City by unveiling profits #3m lower than forecast by its house broker.

The 3.1% slip to #40.5m prompted a marking down of the shares from 93.5p to 82p, half their level of 16 months ago. Broker HSBC had signalled #43.5m.

Chief executive Alistair Napier said there had been some unexpected disappointments which had come too late to flag up, including a bad debt. He went on: ''We are a quality company with a 16% operating margin and strong cash flow. We are unloved by the City because we are old economy and we are small. We believe we have been taking the right management decisions, some of these are coming through more slowly than expected but they are right for the business.''

Record profits in the group's traditional general hire and tower crane business were offset by a 27% crash in profits from powered access and mobile cranes due to cut-throat competition.

There is no let-up in the current year, with both sectors still embroiled in ''intensely competitive conditions'', said chairman Sir John Robb's statement.

It said the group still expected ''significant consolidation'' to take place in the equipment rental industry which was still very fragmented. ''The last year has been an unsettling one for our industry with several companies offering themselves for sale although here have been few completed transactions,'' said the statement.

''Hewden Stuart has looked at a number of these situations but none has met our criteria in terms of quality and value to our shareholders.''

Napier added that the balance sheet was well capable of supporting a deal if the right target emerged.

The reorganisation of the group's tool hire centres into clusters, with restructuring, training and rebranding costs, had a short-term impact on profits which dipped from #13.3m to #13.1m on turnover #6.8m higher at #83.3m. Napier added that investment in the general hire business, where turnover was up 11.8% and profits up 6.1%, was beginning to pay off, with national branding pulling in national customers. On the powered and mobile sector he said: ''We have battened down the hatches and are weathering the storm.''

Capital expenditure was pushed to over #100m by investment in the group's new supply partnerships with blue-chips such as Kvaerner, John Laing and BP Amoco, but will fall back to nearer #70m this year. Gearing rose from 25.1% to 34.7% but cash flow was 14.3% better at #86.5m.

David Cunningham at Bell Lawrie White said margin compression from 19.1% to 16.7% had been disappointing but the reorganisation and rebranding were positive for a future uplift in valuation.

His forecast is a #44m profit this year rising to #48m next year.

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