Pacifica takes rough with smooth

Shortly after this date the real impact of these problems was wired to the market via a profit warning that said that "as a consequence of external factors, the operating result for the year will, on current indications, be lower than expected and around 25% below last year".

The release then went on to say that while excellent sales growth is still expected in 1999, it would be moderated by the continuing economic difficulties in Asia and New Zealand and the subdued Australian resource sector.

Coincidentally perhaps, the company announced that it has secured new orders for its automotive products in North America (worth over U$300m over six years with sales expected to start in 2001) at the same time. As we suspect the company was hoping, this part of the announcement had the effect of offsetting the bleak short-term prospects. In a way, it's a symbol of the times and emphasises the bullish nature of the market at present.

Nevertheless, the importance of such contracts cannot be emphasised strongly enough. They offer stable, long-term earnings and confirm the success that the group is having in the US - success that we believe will underpin long term earnings growth. As we all know, success comes at a price and in this case it takes the form of a new plant at a cost of $100m as the recently commissioned Knoxville plant is likely to be fully utilised for at least five years.

At the end of the day we believe patient investors with the foresight to appreciate the medium term potential of Pacifica are likely to be rewarded. It's important to note that the short-term problems that are hounding the company are caused by external factors, not internal botch-ups so at current prices PBB remains a SPECULATIVE BUY.