Albright gets over a bad start

INVESTMENT COLUMN

The chemicals group Albright & Wilson has not lived up to expectations in its first year as a public company, despite the heavy discount attached to last February's flotation at 150p. But sentiment may be on the turn, reinforced by a sound set of maiden full-year figures yesterday.

Reported pre-tax profits, which rose from pounds 46.1m to pounds 61.6m in the 12 months to December, were distorted by restructuring and rationalisation costs. The more modest underlying rise of 2.4 per cent was none the less a good result, given that soaring raw materials prices sent costs up pounds 43m last year.

The ability to weather this storm derives in large measure from Albright's leading world position in purified wet phosphoric acid, used in a range of products from lemonade to detergent. That strength helped to maintain margins in the core phosphates business at above 15 per cent, although much of the profits increase from pounds 44.6m to pounds 50.8m came from a first-time contribution of pounds 4.5m from the Mexican business acquired at the end of 1994.

Management changes and loss elimination helped surfactants, particularly hard hit by raw materials prices, push second-half profits to pounds 6.2m from the pounds 1.8m recorded in the first six months of the year. The aim over the next 18 months is to double or triple current margins of between 3 and 4 per cent.

It is, however, setting most store by the speciality chemicals operation, despite a profits slippage to pounds 12.7m last year. Based on underlying margins of 15 per cent, the target of producing a fifth of sales from new products could raise the specialities contribution to above pounds 20m by 1998.

With phosphates capacity set to increase by a fifth next year, there is plenty of potential at Albright. A forward p/e of 12, assuming profits hit pounds 67m this year, suggests the shares are still reasonable value, even after yesterday's 16p rise to 187p.

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