BTR dents debt and sharpens focus

THE INVESTMENT COLUMN

BTR is in limbo at the moment as the successful Alan Jackson era draws to a close and the market waits to see how Ian Strachan takes the pounds 12bn behemoth forward.

No surprise then that yesterday's pounds 330m disposal of the group's Tilcon building materials subsidiary left the shares, up 3p to 331p, more or less unchanged.

That said, analysts broadly welcomed the deal which, compared with forecast operating profits of pounds 29m this year, represented a good price for BTR. Minorco has a reputation for paying top dollar when it sees what it wants and it has been talking about expanding into the UK minerals market for some time.

The disposal makes a useful dent in debts which, thanks to the acquisition during the summer of the Australian Nylex minority, were set to match shareholders' funds. It also confirms the strategic drift of BTR towards a more focused manufacturing operation that will be further underlined if followed by the sale of Tilcon's US operations, Slazenger and other peripheral businesses.

That matters both because focus makes sense from the perspective of business strategy and also because the stock market more or less demands it these days, as the underperformance of other conglomerates such as Hanson confirms.

In the short term, BTR's shares are likely to be governed by two unrelated events - Hanson's results on Thursday and the closing off on 4 December of the arbitrage opportunity between BTR and Nylex stock that has kept the lid on the parent company's shares.

Further out, a company the size of BTR will continue to have difficulty doing other than track the state of the world economy. But it does have a number of factors working in its favour. It is a high-margin, cash-generative business with a justified reputation for adding value to acquisitions and the firepower, with pounds 1bn more to arrive from warrant conversions, to add to its portfolio.

The wild card with BTR is how well it tackles the opportunities arising in the Pacific Rim, a market it is better placed to attack after the Nylex deal. While investors wait to see how Strachan, China and pounds 1bn mix, a prospective yield a third higher than the market average will support the shares. Fairly priced.

Salvesen feels the pressure

Six years of moulding and trimming have at last put Christian Salvesen in the shape chief executive Chris Masters dreamed of when he joined in 1989. Manufacturing, including brick-making, has gone and the focus is now firmly on services, mainly contract distribution and generator hire. But since a profits warning early last year, the City seems to have lost confidence in the strategy. Even after yesterday's 14p bounce- back to 254p, the shares are down over a third on the peak of 398p hit in 1993.

The proximate cause of yesterday's rebound was better-than-expected figures for the six months to September. Pre-tax profits rose from pounds 41.1m to pounds 45m after a strong return to form of the Aggreko generator hire and temperature control division. Operating profits there jumped 21 per cent to pounds 18.2m and it seems that the problems two years ago in the US are behind it.

But Salvesen's other two activities are not exactly the picture of health. It is clear that distribution, where profits crept ahead from pounds 21.7m to pounds 22.3m, remains under severe pressure from its main food-retailing customers. The main prospect of growth comes in extending the mature "contract logistics" operation for food retailers to other industries. Swift, the industrial distribution business acquired 18 months ago, is expanding into continental Europe, where growth in industrial third-party distribution is running at around 20 per cent a year compared with 4 per cent for food.

Meanwhile, Salvesen has again been hammered in its pea freezing business by poor weather. This time the drought is blamed for the decline in profits from pounds 6.5m to pounds 4.9m and the business is on course for its third year of decline.

Profits of pounds 81m would put the shares on 13 times prospective earnings which are likely to be flat for the third year in a row. Fairly rated, with bid prospects limited.

Field's niches

bear fruit

Worries over soaring prices for paperboard held back Field Group's shares in the first 18 months after floating at 250p mid-way through 1993. But since the turn of the year, the UK's leading maker of upmarket cartons for consumer products has outperformed the rest of the stock market as the City has woken to Field's strengths.

Yesterday's halfway figures showing a 25 per cent rise in pre-tax profits to pounds 9.1m for the six months to 1 October continued the trend, nudging the shares another 6p higher to 319p. It is an impressive performance, given the pain being suffered by other packaging groups such as Rexam and Sidlaw.

Field has been able to shrug off soaring raw materials prices and avoid the most competitive areas of the retail industry by concentrating on fast-growing niches. Volumes were up 10 per cent in six months against a market that has grown only 2 per cent in the past year.

Investment is being stepped up to around three times annual depreciation of pounds 10m, increasing capacity by a fifth to support new orders. A big contract with BAT Industries could be worth pounds 10m a year over three years. Meanwhile, discussions are being held for a French perfume packaging acquisition.

Full-year profits of pounds 18.5m put the shares on a forward rating of under 14. Reasonable value.

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