For a measure of the regard in which the City holds Philip Bowman, look no further than Smiths Group’s share price. In the year since the former Allied Domecq and ScottishPower boss was hired as chief executive, the perennial laggard among large-cap engineers has become one of the leaders. Shares in the £4 billion conglomerate have outperformed the all-share index by 24 per cent.

Yet as yesterday’s full-year figures showed, investors’ expectations have run ahead of delivery. The numbers, albeit modestly ahead of forecasts, were solid rather than superlative: pre-tax profits were up 10 per cent on a 6 per cent rise in underlying sales.

It was the detail of Mr Bowman’s turnaround plan that drew greater attention. First, the company, now split into five divisions, aims to produce annual cost savings of £47 million in three years. Secondly, Mr Bowman has set sales and margin objectives for each division, which, in aggregate, imply a pickup in growth rates over present forecasts: revenues up roughly 7 per cent a year – against an implied 5 per cent previously – and operating margins rising above 18 per cent. The targets are accompanied by a matching management incentive scheme.

Progress has already been made. Smiths’ large North London head office has been abandoned for more modest premises and the backlog of orders in its underperforming medical systems division has fallen 90 per cent on the year.

Nevertheless, the challenges have only increased since Mr Bowman took office. Selling Flex-Tek, which supplies ducts and hoses to US housebuilders, appears to be out of the question, for now. Its strong gearing to a US housing recovery means that it makes more sense to retain the division and restructure in readiness for the upturn.

Other problems are a result of increased opportunity. The 9/11 Act, which requires all cargo entering the United States from 2012 to have been scanned at its port of departure, means that contract sizes for Smiths’ detection systems unit have surged from $15 million to $250 million – making its sales patterns lumpier and less easier to predict. Forthcoming elections in the US and India are also likely to stall government procurement programmes.

The recent strengthening of the dollar against sterling should provide a useful boost to earnings: with more than half of its sales drawn from America, every two cents’ advance in the exchange rate adds £3 million to Smiths’ profits. The scale of Smiths’ sales to the oil and gas, healthcare and security sectors should also make it relatively defensive. What is less easy to protect is Smiths’ valuation premium to its engineering peers – of nearly one third at yesterday’s £10.16, or a forward multiple of 13 times. That suggests that further near-term share price outperformance will be harder to achieve. Hold.

MP Evans

MP Evans, the plantation owner and beef cattle producer, is a 19th-century company that has adapted to the 21st remarkably well. That it has owes much to strong palm oil prices.

Output is relatively static because of the seven years it takes the palms to mature. Demand from consumers and food processors in Asia has soared and stocks have been diverted increasingly to biofuel production. Average palm oil prices are up 70 per cent on the year. Yesterday’s first-half figures showed Evans’s palm oil profits to have doubled.

Those at the group level did even better: up from $13 million to a record $30 million. There are other factors. Appreciating land values in Malaysia have prompted Evans to sell long-held plantations to property developers and to reinvest the proceeds in Indonesia, where costs are lower. Such sales have brought in $44 million in the past six months. It is buying 50,000 hectares in Indonesia, with its existing plantations in Sumatra providing cashflow until the new estates are ready. In Australia, drought has disrupted cattle breeding. However, Evans has invested well, with the average cost of its stake in NAPCo, one of the country’s biggest cattle ranchers, less than half its current net asset value. Given emerging market demand, that should keep palm oil prices strong – they are currently three times Evans’s cost of production. The shares, at 295¼p, are worth buying on weakness.

Topps Tiles

The smiley blue and yellow mascot that looms over the logo of Topps Tiles seems inappropriate for a company whose shares have lost 70 per cent of their value over the past year.

Yet there were modest grounds for cheer yesterday: the nation’s largest tile and wood flooring specialist said that it had renegotiated its £115 million loan facility. Fears that Topps may breach its covenants have lingered for months and Matt Williams, chief executive, conceded there was a possibility that it might have done so early next year. Now Topps has bought peace of mind until 2012, albeit at the cost of a £500,000 set-up fee and an estimated extra £1 million a year in interest charges.

The remainder of Topps’s year-end trading statement made grim reading. Like-for-like sales over the past eight weeks are down 13.1 per cent, a sharp deterioration from the previously reported 7.7 per cent fall. That performance implies that profit forecasts for the next financial year – the consensus is £25 million – are too high. Together with management’s increased focus on cash conservation, it also suggests that the dividend is in danger: quite a reverse for a company that, in a decade since listing, returned £200 million to shareholders. At 61½p, Topps trades at seven times earnings. That would be cheap in normal times, but as this week’s dire outlook from Carpetright attests, these are anything but. Avoid.

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