Bottom line: Charter makes the break

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The Independent Online
PERHAPS the only surprising item in Charter Consolidated's pounds 235.5m buy-back of Minorco's 36 per cent stake and the final breach with Anglo American-De Beers is the fact that Sir Michael Edwardes, brought in 8as 'hit man' by Minorco in 1988, remains as non-executive chairman and is not departing from the Charter board along with the three other Minorco nominee directors.

But, as an industrialist, it is likely that Sir Michael has been on the side of the angels in the debate between Charter and its absentee South African landlords.

Jeffrey Herbert, chief executive, and his team have clearly found Minorco, however supportive it may have been in the past, something of an obstacle to getting the most out of Charter. Since 1981, when Minorco took its stake, Charter shares have underperformed the market by 40 per cent.

It is pleasing to see that Charter has negotiated a price for Minorco's shareholding which is an effective 1.9 per cent discount to Tuesday's market price, heading off any possible protests from its own shareholders.

In theory the 10 per cent enhancement to Charter's earnings following the buy-back of the Minorco stake will more than offset the likely dilution from replacing Johnson Matthey's contribution to operating profits - at pounds 24.9m some 40 per cent of the group total - with low yielding cash.

NatWest Securities is expecting a 10 per cent drop in earnings on pre-tax profits of pounds 49m followed by a recovery in 1994-95. But the future performance of Charter's share price will now depend on the management's ability to make the sort of logical and sound acquisitions it is currently talking about.

Charter's existing portfolio of interests, to British eyes, does not inspire much excitement, ranging as it does from mining and rail track equipment to building materials and quarrying.

Finding a UK-based industrial brand leader that will enhance earnings will not be easy, and so the stock market must reserve its judgement. But a 1994/95 p/e of 14 is not high for a conglomerate especially when, shorn of cash, the operating businesses are valued on only 12 times earnings.