Bottom Line: Plastic tactic at ICI

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The Independent Online
IMPERIAL Chemical Industries' announcement that it may float its PVC interests, held in a joint venture with the Italian group Enichem, must rate as one of industry's worst-kept secrets. But it does confirm that economic recovery is not softening its restructuring zeal.

It would be easy to make a case for keeping EVC. This year, it will make a small profit on its pounds 800m sales, for the first time since the recession started to bite. NatWest Securities estimates it could make up to pounds 100m operating profits at the peak of the cycle. Finding projects where its surplus cash can earn a good return is already proving a challenge for the group. In the meantime, the proceeds of the sale - perhaps pounds 500m in total, half of that for ICI - will be earning just 6 per cent or so.

But PVC is not a business that fits into the new ICI. While EVC is the leader in Europe, with about a fifth of the capacity, worldwide it is about fourth. It could, of course, expand outside Europe, but PVC is yesterday's technology, not tomorrow's, and expansion within the joint venture could be difficult. The arrangement makes expansion more complicated, but buying out Enichem's half would be difficult to explain to shareholders.

For investors, however, EVC offers a highly-geared play on economic recovery, which means it could attract a reasonable flotation multiple despite the years of losses.

How much longer ICI will deserve to be rated as a cyclical business is another matter - a forward multiple of 23, 70 per cent ahead of the market, assumes a lot of recovery potential.

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