Bluechip: Hanson wins on aggregate

Hanson's recent ejection from the FT-SE 100 raised barely a murmur, even though it used to have one of the most ardent fan clubs of any big company. The loss of its blue chip status has also removed the last justification for many fund managers to hold the stock.

Of course, the reason for the ejection was its decision to split itself in four, so that the value of Hanson as of old in one sense still exists to shareholders.

The Energy Group, home to the old Hanson energy businesses, remains in the FT-SE and should stay there for many years to come.

While Hanson may be a shadow of its former self, could there be something left to provide the springboard for a comeback? The rump of the old Hanson houses the least glamorous of what was always a deliberately unglamorous collection of businesses. Slimmed down, Hanson has three arms: bricks, aggregates and cranes.

Of these, aggregates has the most potential while cranes, which could be worth up to pounds 400m, may well be sold off. Aggregates includes quarrying for gravel and the like, and supplying other raw materials to the construction and road industries.

Buried away in the report and accounts is a glimmer of the appeal that the company may yet boast. Hanson depreciates its assets in the ground - its quarries and gravel pits - at a far faster rate than its competitors. According to figures calculated by the stockbroker Charterhouse Tilney, this understates its UK profits by as much as pounds 20m a year. It also suggests that reserves of pounds 1.3bn are undervalued on the balance sheet. In addition, the stockbroker believes an pounds 800m liability in the balance sheet for environmental clean-ups will almost certainly be far less.

In the US, the aggregates business is set to reap the benefits of a heavy rationalisation programme, and Hanson can now claim a 4 per cent market share of construction aggregates, making it the third largest. The prospects in the UK also seem benign, given that construction is looking better than at any time since the late 1980s.

The company should also have learnt from the past to avoid expansion at the expense of real investment. A more disciplined approach may yet see Hanson Mark II reclaim a place in the blue chip ranks.

While overall rates of growth are likely to be modest, Hanson has the potential to build a successful future, concentrating on the industries it understands. At 306p, the shares trade on a modest p/e of 11 times current year earnings, and under 10 for 1998. With a good yield, and limited downside, the shares could well be a good bet for the long term.