Bottom Line: Zeneca's cures less miraculous than claimed

LIKE a censored film, the most interesting things about a pathfinder prospectus are usually the bits that are missed out. But in the case of yesterday's tome from Zeneca - weighing in at 135 pages - there was little to suggest that the numbers that will shortly replace the black dots will be any higher than the market expects.

Zeneca's management team displayed plenty of enthusiasm about its prospects but this did nothing to change the view that the bulk chemicals business, which will be left behind as Imperial Chemical Industries after the demerger is completed in June, looks a far more interesting business at this point in the cycle.

John Mayo, Zeneca's finance director, said that return on sales should be at least 15 per cent and that it would 'strive to achieve its medium-term target of 20 per cent'. But - to management's credit - it achieved more than 15 per cent in two of the past three years and, despite the precipitate drop in sales of the heart drug Tenormin following US patent expiry, was only a whisker away from it last year. Compare that with new ICI, where Ronnie Hampel, chief executive, has set a target of 20 per cent return on capital - more than five times that achieved in 1992 - and makes no bones about the fact that he will have to be ruthless about selling underperformers and cutting costs to achieve it. Zeneca will have its share of cost-cutting - rationalisation provisions of pounds 195m were established in 1992. But unless there is a change in attitude to loss-makers like Biopol and Quorn - which it still sees as the great white hopes of the future - there is far less scope for ruthlessly axing underperforming assets.

Investors should also be wary of Zeneca's understandable tendency to opt for the optimistic gloss where the future is uncertain. Thus, it is anticipating only a 7 per cent fall in agrochemical volumes in Europe this year, compared with the 10 per cent anticipated by Ciba Geigy, the market leader.

The five new products that are due to be submitted for regulatory approval in the next three years are also too far from the market to be realistically appraised. The 25 per cent underperformance in drug company share prices this year has discounted much of the bad news that could come from Hillary Clinton's drugs review, leaving the sector on a market multiple. That means that Zeneca will find it hard to replace the black dots with more than 600p a share - for a yield of 5.8 per cent and a multiple of just over 11.