The Investment Column: Cookson's renaissance sees a jump in profits

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The Independent Online

Edited by Michael Jivkov

To think that just a few years ago Cookson was teetering on the brink of collapse. During those dark days, the group was struggling under a £750m debt burden after betting the ranch on becoming a electronics equipment maker, faced a major pension fund deficit and was having trouble finding support for a rescue fund raising.

Cookson marked its return to corporate health yesterday with its first dividend payment since 2001. It also unveiled a 20 per cent jump in annual profits to £101m, said it had reduced its borrowings to £290m and doubled top-up payments into its pension fund.

This renaissance has been thanks to a radical restructuring programme, enacted by the chief executive Nick Salmon, which has seen the company make key disposals, focus on providing materials and parts to the steel, glass and semiconductor industries and move its production facilities to emerging countries such as China, India and Brazil.

Cookson has had to move to such faraway parts of the world because the companies it supplies have done so. A by-product of this has been a fall in labour costs which has boosted the company's profit margins. After yesterday's forecast-busting figures, brokers upgraded their forecasts for the current year. This leaves the stock trading at just 12 times forward earnings, a substantial discount to the wider engineering sector. Buy.

Guinness Peat

In the 13 years since its inception, the activist investor Guinness Peat Group (GPG) has outperformed not only the FTSE 100 but also the legendary Warren Buffett. During this period, it has delivered average compound growth of 18.1 per cent while the FTSE notched up 9 per cent growth and Mr Buffett's Berkshire Hathaway 17 per cent.

On a more straightforward metric, when the financiers Sir Ron Brierley and Blake Nixon took over the company at the start of the 1990s it had a stock market value of £28m.

After yesterday's annual results, GPG shares rose 4p to 92.5p, giving the group a value of more than £900m. The figures revealed a £30m rise in net profit to £97m. A big chunk of this was accounted for by the impressive turnaround GPG has engineered at the thread maker Coats. It bought control of the business in 2003 and enacted a restructuring which saw the company move production to low-cost manufacturing centres in China, India and Eastern Europe. Thanks to GPG's reforms, Coats delivered a profit of £25m in 2005 compared with £4m in 2004.

The investment group is believed to have made a profit of more than £30m alone from the sale of its stake in the hotels group De Vere last year. In this case, GPG did not take control of the company. It campaigned for disposals and a return of cash to shareholders. When these came, De Vere shares soared and GPG sold its stake at a healthy profit.

With Sir Ron and Mr Nixon at its helm, GPG has an awesome track record of spotting undervalued investments and unlocking that value. There is nothing to suggest this will change any time soon. Buy.

SMG

A few years back, the media group SMG seemed to get nothing right. An acquisition splurge left it with huge debts, just as the stock market bubble burst and the advertising market took a nosedive.

Since then, SMG has sold off businesses including its newspaper operations, reducing debt to manageable levels. Yesterday's results for 2005 showed that on the trading front too, things were coming right. In particular, SMG's Virgin Radio business achieved its first growth in four years. Revenues were up 11 per cent, compared with an industry decline of 4 per cent, and operating profits jumped 23 per cent.

Elsewhere, SMG's ITV franchises slightly outperformed the main ITV business, while the billboard operation increased revenues by 12 per cent. Group profits gained 46 per cent to £20m. SMG shares, at 83p, offer upside. Buy.

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