Blue Chip: BICC holds the power but the force isn't with it

BICC, the cables to electrical equipment group and a steadfast of the UK engineering sector, has found it an uphill struggle to maintain profitability in the face of determined competition at home and overseas.

Some hope was offered last week by the news that it had struck a deal with Delta, where the two concerns swapped assets, just to close them down. This scorched-earth policy makes sense, but it is too soon to say how it may benefit BICC.

In essence, Delta gets BICC's construction and building wire operations, while BICC gets Delta's power cable operations. BICC can then close down the operations it has acquired and concentrate remaining activities in rod and wire at its existing site on Merseyside.

This will leave BICC as the kingpin of the UK power cable industry, with a commanding market share. The plan is part of a much wider restructuring, which will cost a pounds 140m writedown in the 1997 accounts. It follows charges of pounds 65m in 1996 and pounds 176m in 1995.

Shareholders will be impatient to see some improvement after all this. The shares have slipped back from a five-year high of 460.5p in 1994 to its current low of 133.5p.

The Delta asset swaps are subject to approval from the Office of Fair Trading, although both sides believe they will get the green light on the basis that the deal must be assessed in the light of European-wide overcapacity.

Assuming it does go through, BICC could well see pounds 100m in unprofitable sales knocked off the profit and loss account. Even so, it is hard to see how this could improve margins to any great extent.

In an accompanying trading statement, BICC highlighted pricing pressure and trading weakness. Its German joint venture also continues to throw up problems. One plant has been closed and another is almost closed, although, encouragingly, BICC adds that local competitors are also cutting capacity.

Last - but with pounds 2bn of sales not least - is how Balfour Beatty the civil engineering business, can shape up. Despite its scale, profitability was running at a miserable half a per cent in 1996. BICC wants to pump that up to 3 per cent. But, again, it won't be easy.

Even if Europe comes good, there are potential problems lurking in Asia and Australia. The economic downturn in Asia could hit its businesses in Malaysia and Indonesia and cannot be good news, while Metal Manufacturers in Australia has issued a number of warnings over the past year.

Full-year results are due on 4 March. Until then, there is little to inspire purchases of the shares. Further ahead, however, it would be something of a miracle if the latest round of rejigging revives BICC's flagging fortunes. Avoid.

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