A month after the breakdown of merger talks with Aggregate Industries, Tarmac's Monday trading update described solid progress in its materials business. It said construction turnover would be similar to last year.
Chief executive Sir Neville Simms' statement to the City said Tarmac had delivered a robust financial performance in 1998 ahead of its announcement of year-end results on 16 March.
Analysts expect Tarmac to report pre-tax profit of about £137m for the year to 31 December 1998, £17m up on 1997.
The share market responded to the statement with a thumbs-down: Tarmac's share price slipped 1.5p to 108.5p on 18 January.
Analysts briefed by Tarmac finance director Chris Bunker and head of group planning and development Rod Burgess on Monday and Tuesday said they were disappointed by their meetings.
They had hoped for news on the corporate direction of the group and were unconvinced by its trading performance.
One analyst said: "Tarmac has clearly lost market share in materials. It is not seeing the same buoyant market in rail that some rivals like Jarvis are.
"The dramatic improvement in margins in the construction business that we were promised 18 months ago has not materialised, either.
"If this is the best Tarmac can manage when it is under pressure to paint things in a bright light, we have to assume that the current performance is indifferent to poor." Bunker and Burgess declined to speak to Building, and gave nothing away about possible merger plans in their discussions with analysts.
Another analyst, referring to the report's claim that Tarmac Construction is "among the best in class of its UK peers", said: "I hate it when they talk about being best in class – they are making margins of less than 2% – nowhere near best in class." Analysts speculated that Tarmac will use its "closed period" ahead of the results announcement to restart talks with possible merger partners.
It is understood that the group board has spent the last month cooling off after the breakdown of the Aggregate talks, but meet within a fortnight to discuss future corporate strategy.
There is speculation that there may even be an announcement committing Tarmac to a demerger before the group's year-end results.
Analysts believe the construction business is now more likely to be sold or given away because it may be considered too difficult to float off in a demerger.
Supporters of the construction business point out that its building arm has a string of major repeat customers such as J Sainsbury, Asda and Marks & Spencer.
Tarmac's contract housing arm is also now operating in a better market, and even if the rail arm has disappointed, the civils business is now oriented away from the collapsed roads market.
M&E arm Crown House, too, is operating during a period of high demand. Insiders say the only possible candidate for sale is the group's design arm, Tarmac Professional Services.
