The Investment Column: BOC still worth buying as a long-term investment

Cussons' overseas strategies makes soap maker too risky to buy - Nestor Healthcare needs time to recover
Click to follow
The Independent Online

So out comes the scalpel. BOC Edwards provides very specialist vacuum equipment used in the manufacture of semiconductors, a viciously deflationary industry. The company is cutting jobs to improve the efficiency of its factories in the UK and US. Redundancies number only 100 out of a workforce of almost 5,000, but the resultant working practice changes will save £5m a year and allow BOC Edwards to develop future production a bit nearer to its semiconductor manufacturer customers, mainly in the Far East.

BOC Edwards has assumed an unduly large importance as far as City sentiment towards BOC is concerned, so it is to be hoped that these latest moves produce the desired results. The £8.1m restructuring charge was one of a handful of reasons why yesterday's third quarter figures came in at the bottom of the range of City forecasts, but by the end of the day investors appeared willing to look through the disappointment to see the underlying strengths of BOC.

The other reason was the spiralling costs of having US shareholders. Complying with new regulations on internal financial controls added more than £2m to central costs, and even more in the local subsidiaries.

But back to those underlying attractions. BOC's main businesses are trading well. The biggest, industrial and special products, supplies small business with gas cylinders and other basic equipment, and has recently been divested of its lowest-margin US operations. And process gas solutions - which ships gas and builds massive plants to take delivery of gas supplies for some of the biggest industrial companies in the world - is expanding rapidly, with £500m of investments coming to fruition in the next two years, generating an extra £30m of operating profit. Gist, a logistics division, is also proving a good little earner, winning clients such as Woolworths and Ocado.

We have long advised readers to buy BOC shares and tuck them away (we last did so in November at 905p). And again. The dividend yield for new buyers is about 4 per cent at last night's share price of 1,074p, so it is still fairly priced as a long-term investment.

Cussons' overseas strategies makes soap maker too risky to buy

PZ Cussons' most famous brands in the UK are Imperial Leather and Original Source shower products, but it does more business supplying the street markets of Africa and Asia than it does in Europe.

The soaps and creams manufacturer is a specialist in exotic markets, having been founded in Sierra Leone in the 1880s. But it does not always get its expansion plans right. It was in China for 10 years without making a penny, and had to close its operations in Russia within 15 months. It had made the mistake of trying to supply the Russian market with soap produced in Poland, where costs were higher and the currency strengthened. Group profits fell from £60m to just £53.9m in the year to June.

So it is back to the knitting, and opportunist expansion plans that will be concentrated on two fronts. In Nigeria, where the company has a strong local management team, it is working with China's Haier to manufacture white goods such as fridge freezers to sell to a burgeoning middle class in the oil-rich, debt-forgiven nation. In Europe, it hopes to spruce up the product ranges and widen the customer base of its recently acquired Original Source and Charles Worthington brands. Both projects look risky. The shares, at 1,190p, are too pricey.

Nestor Healthcare needs time to recover

The National Health Service has got more efficient, reducing its need to buy in expensive nurses and doctors from private sector agencies. Local health trusts have also worked to avoid having to use the private sector to cover doctors' out-of-hours, too, dashing the hopes of companies such as Nestor Healthcare, which expected lots of new business to drop into its lap.

Nestor's business model was trashed by the changes, and it is a tribute to its chief executive, Stephen Booty, that turnover in the half-year to 30 June fell 18 per cent and yet the group was dragged back into profit.

The trauma is not over yet, though. There now appears to be significant pressure in the company's social care business, which supplies local authorities with home help for the elderly. The City had been hoping this would show a pick-up in yesterday's results, but no, instead the company said local authorities had started flexing their muscles, too, and demanded significant price cuts to renew Nestor's contracts. This is probably the start of a trend, and it means Nestor could be in firefighting mode for a long while still. Its shares fell 19p to 147p.

To cap it all, Nestor is on a hit list of stocks for some of the City's notorious short-sellers, speculators betting the shares will fall sharply. The reason is that Nestor needs to refinance its £105m overdraft facility, which runs out next year. Mr Booty was optimistic that can be done within a couple of months of choosing bankers, but investors should avoid the stock for a while.