Confidence on the rise, Warburg survey says

BUSINESS conditions have improved markedly recently according to a survey by S G Warburg. Confidence is up, output rising and order books lengthening, writes Tom Stevenson.

The poll of 405 bosses of smaller quoted companies shows 57 per cent are more confident about growth prospects than they were three months ago. Consumer goods companies are especially bullish.

According to Richard Hickinbotham, smaller companies analyst at Warburg, the improvement in confidence reflects a strengthening of output in recent months and a growing belief that demand will continue to rise.

He warned, however, that higher raw material prices and increasing capacity pressures were likely to lead to greater inflationary pressures. Some 22 per cent of companies questioned expected to raise prices in the coming months.

The survey, carried out in August and September, polled chairmen, chief executives and finance directors of companies with market capitalisations under pounds 320m.

According to Warburg's model, these smaller companies are expected to produce earnings growth of 31 per cent on average in 1994 followed by 22 per cent next year.

That compares with growth of just 11 and 12 per cent on average for the largest 100 companies in the FT-SE index.

Other findings include:

A third of companies intend to increase their workforce over the next three months. Two-thirds said they were having difficulty recruiting skilled staff, with half expecting the problem to get worse over the next year.

Staff shortages had not led to inflationary wage increases. In the past 12 months, 80 per cent of the companies questioned had kept salary increases to 3 per cent or lower. They expected similar deals over the next year.

Nearly all the firms (91 per cent) expected inflation to remain within the Government's 1-4 per cent target range in the next year. But 44 per cent expected the top limit to be breached within two years.

Exports are buoyant. The majority said their order books had improved over the past three months.

(Graphs omitted)