Blue chip: Getting the chemistry right

I make no apologies for returning to Imperial Chemical Industries which as my share selection of the year is a stock that naturally intrigues. Seven months after I selected them at 769p the shares now stand at 917.5p, this despite some profit-taking following last week's results.

This was never going to be a year when the ICI share performance was driven by underlying trading.

"More intriguing prospects for the shares may be found in how chief executive Charles Miller Smith participates in the shake- up of the global chemicals industry. ICI could fund an acquisition of up to pounds 5bn without needing to tap shareholders. If this is the year ICI chooses to make it move, the shares could motor," I wrote in January.

That has indeed proven to be the case. After a dull performance in the early part of the year, the company announced in May it was spending pounds 5bn to buy Unilever's speciality chemicals business in a deal which will reduce ICI's exposure to the cyclicality of the industrial chemicals industry.

That deal provided just the spark required to set the shares alight and ICI has been one of the FT-SE 100's top 10 performers over the last three months.

The shares might have done even better had it not been for the strength of sterling. The pound has appreciated by around 12 per cent on a trade weighted basis since January and that has bitten into ICI's reported profits.

Last week, ICI revealed that interim pre-tax profits before exceptional items had fallen to pounds 160m from pounds 367m. That was not unexpected with almost half of that decline accounted for by the strength of sterling.

It now looks that ICI will be offered very little help from either the market place, in terms of prices and volumes, or the foreign exchange markets in terms of sterling's strength. The share price will therefore continue to be driven by ICI's rebalancing of its asset base.

ICI still plans to sell the remainder of its industrial chemicals assets. Analysts reckon there is perhaps another pounds 2bn of asset sales to come.

ICI is very much a business which is repositioning itself. There are still arguments to buy the shares in anticipation of the improvements this will yield.

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