Bottom Line: Williams adheres to right advice

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The Independent Online
WE KNOW about the listening bank, but the listening conglomerate? Nigel Rudd and Roger Carr are proving adept in promoting the new Williams Holdings to investors.

Gone is the 'buy them big and break them up', scatter-gun approach of the Eighties. In its place is the tightly focused, mildly diversified manufacturer which only makes acquisitions that fit in with its core activities of building products, fire protection and security.

The new image is clearly one that investors, if not share dealers, prefer. Stock market reaction was almost enthusiastic on the news that Williams, owner of Cuprinol and Polyfilla, was buying Solvay's European wood-care and tile adhesives businesses for pounds 64m and, with the other hand, raising pounds 267m in a one- for-seven rights issue.

Particularly impressive was that Williams was able to sell the rights issue as a retrospective way of paying for the pounds 155m cost of nine acquisitions, including assumed debt, made since January 1993.

In the past Williams' poor cash generation sat oddly with its chunky 16 per cent profit margins. This was because huge amounts were spent on restructuring and capital investment, and dividend payments were generous.

This has been less of an issue in recent years. Cash generation has improved and the rights issue will cut Williams' gearing from 70 per cent to 7 per cent.

Williams has listened to its investors. They didn't want a war chest, nor a dribble of share issues as acquisitions turned up.

The rights will give Williams enough headroom to pursue its indicated path of modest purchases for the rest of the year.

Meanwhile, the combined effect of the Solvay acquisition and keeping money on deposit will not dilute this year's earnings before a planned pounds 5m to pounds 10m restructuring.

The fact that Williams closed 1p below its theoretical ex-rights price at 379p shows that some doubts are still around. A prospective yield of 4.4 per cent does require more rapid growth than the market currently expects if the shares are to compete with BTR.

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