Bidders could add value to Hanson

THE INVESTMENT COLUMN
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The Independent Online
What was really mystifying about the extraordinary scenes at Hanson's annual meeting yesterday was shareholders' apparent lack of interest in the proposed dismemberment of their company. Faithful investors also show a bewildering willingness to accept what has been a quite inexcusable under-performance against the rest of the market. The shares have lost more than a third of their relative value over the past five years.

Plainly something had to be done - the shares' relative decline started 12 years ago, about the time of the London Brick acquisition, and has only accelerated in the 1990s. Whether the planned demerger of three of Hanson's four operating divisions is the answer is not clear.

The cynical view (often the right one in these circumstances) is that Lord Hanson's decision to call time on the conglomerate experiment actually has little to do with creating shareholder value and more to do with prolonging a family dynasty. Robert Hanson, the argument goes, would not attract institutional support if he were proposed as his father's successor to chair the whole pounds 11bn group. As head of a Hanson cut down to a quarter of its size, albeit still probably an FT-SE 100 member, the family grip might be acceptable.

Unlike the previous demergers of ICI/Zeneca and Courtaulds, the break- up of Hanson does not appear to unlock any hidden value. In fact some analysts are suggesting an aggregate valuation of the parts at between 190p and 200p, compared with yesterday's close of 202.75p, an 8.75p fall on the day.

There are advantages to holding the whole group together. It would defer the capital gains tax that might be payable on a four-way split and would avoid the duplicated costs of running four head offices instead of one.

But valuations of the parts probably miss the crucial point of the demerger, which is that it is highly unlikely to come to fruition in the form now being advertised. Bidders are probably already lining up for the best bits, but it is hard to see any plausible buyer for, say, Imperial Tobacco waiting the nine months or so it will take to put together the demerger. Nor would Hanson go to the sizeable expense of demerging itself if it could simply sell Imperial to the likes of BAT Industries, Reemtsma of Germany or even Japan Tobacco.

While tobacco is the most saleable division, both chemicals and building materials could also attract bidders, especially if they are not so loaded with debt as to become completely unattractive. With a dividend yield of 7.5 per cent, the shares are strongly underpinned at current levels and shareholders should hold on to see how much value an effective For Sale sign can create.

Ashstead ready to grow further

Since Peter Lewis and George Burnett boarded Ashstead Group nearly 12 years ago it has become Britain's biggest non-operated plant hire group. From an investment of pounds 458,000, their combined stake is currently worth pounds 23m. They are now preparing to put their fortunes at risk by launching the next leg of the group's growth strategy.

Ashstead is paying pounds 16m for Leada Acrow, a 1993 buyout from BET, and $30.3m (pounds 20.2m) for McLean, an equipment hirer based in Virginia, close to its existing Sunbelt chain of US depots. To finance the two deals, Ashstead is calling on shareholders for up to pounds 66.3m in a one-for-two rights issue at 152p a share.

Yesterday's 2p gain in the share price to 180p, despite such a hefty cash call, gives a clue to the market's enthusiasm for Ashstead. Its performance has certainly been impressive, during what has been the worst building recession since the war. The market share of its main A-Plant UK business has almost tripled to 11 per cent since 1991 and margins have doubled to over 20 per cent since the trough of the recession.

Ashstead is probably unique amongst plant hire groups for its heavy incentivisation of staff, but it has also cut reliance on the construction industry from 100 per cent 10 years ago to 40 per cent now. The latest deal should spread the business even further.

Leada, with operating margins of 16 per cent, takes Ashstead into a new business area, concrete formwork, and across the Irish Sea for the first time. Margins should be quickly boosted by putting A-Plant business through 15 of the 19 depots. McLean looks more risky. The price looks reasonable, given profits of $4.8m last year, and McLean's margins of 14 per cent look capable of expansion. But the recent exit from the US by rivals Vibroplant shows just what a snake-pit it can be.

Based on UBS's forecast that profits will rise from pounds 18m to pounds 29m in the year to April 1997, but earnings growth will slow, the shares could mark time on a forward multiple of 12. Shareholders should follow the example of the founders and "tail swallow" enough rights to take up the balance.

Fyffes rides the banana boat

Yesterday's results from Fyffes, the Dublin-based fruit supplier, were something of a sideshow. The real interest in Fyffes is what it will do with the banana interests of Geest, which it acquired in a pounds 147m deal last month, and whether they will reward investors.

Although nothing will be decided ahead of a strategic review, expected to take another six to eight weeks, some things seem clear. Geest's two new ships and its Costa Rican banana plantations are likely to be sold. Other than this, Fyffes is planning few changes. It will run Geest as a separate business with its own sales force and head office. The only potential synergies are in shipping and technical support.

Fyffes could cut more costs with a full merger but that would risk irking the supermarket groups, which would have been left dealing with one main supplier.

The last thing Fyffes wants is a recurrence of last year's banana price war, which saw the price fall to 19p per pound. That skirmish was funded by the supermarkets, which absorbed the lower prices in their margins, but they could put pressure on the producers in any future battle.

Fyffes claims there is good news ahead for bananas. The UK banana market - of which Fyffes now has half - is growing at 8 per cent a year. It has a broader base of suppliers, which minimises the risk from the natural disasters that can devastate crops. Bananas also account for just 30 per cent of Fyffes' sales, even after the Geest deal. But investors face uncertainties. Whatever Fyffes says, bananas are at the mercy not just of weather but political instability in producing countries, disease, and vagaries of supply and demand.

Yesterday's results show that Fyffes has managed the volatility a lot better than Geest. Pre-tax profits for the year to October were 16 per cent up at Irpounds 42m on sales ahead by a third to Irpounds 1.2bn. This year's interims will be flat, but Panmure Gordon is forecasting pounds 44.5m for the full year. With the shares unchanged at 112p they are on a forward rating of 13. A discount rating, but the shares are unlikely to excite.

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