Bottom Line: World player stresses growth prospects

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The Independent Online
THE 5.5p rise in Hanson's share price may owe a lot to the unexpected hike in the dividend, but its status as a yield stock is starting to look a little unfair.

A gradual increase in volumes in everything from bricks to polyethylene is starting to feed through to higher prices in most of the group's businesses. The gearing effect is most pronounced in aggregates businesses, where an 8.3 per cent rise in sales produced an eight-fold profits increase. The fact that margins are still just 2.7 per cent, however, indicates there is still plenty of upside to come.

The extent of the upside is indicated by Hanson's calculation that its businesses are currently about pounds 1bn below their peak level of operating profits. Shareholders should not get too excited.

Even if such peaks can be seen again (and in building and, possibly, chemicals that is extremely doubtful) the fact that it seems to have lost the knack of earning interest on bank borrowings will dull the effect on the bottom line.

The pounds 817m of disposals has brought gearing back to a more comfortable level, although the swing from pounds 36m received to pounds 119m paid still knocked a painful hole in profits. For the full year, it will be pounds 265m ahead of last year, dampening the impact of recovery in its businesses.

Analysts are penciling in about pounds 1.1bn excluding disposal profits, 10 per cent up on last time, putting the shares on a multiple of about 14, rising to 18 on an all-in basis. The 5.6 per cent yield looks generous even if the dividend is not increased for another year or so. That is enough to underpin the shares, but the growth prospects should not be overlooked.

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