Charter boosted by Swedish purchase


Once seen as a rather dull part of the Anglo-American mining and minerals empire, a more exciting conglomerate in the making has emerged since Charter severed links with Minorco and Johnson Matthey, two other groups in the Anglo web, in 1993.

But what really transformed Charter's image was last year's pounds 295m acquisition of Esab, the Swedish group that dominates the world market for welding supplies. Since the middle of 1994, when the intention to add another leg to the business was announced, the British group's shares have outperformed the market by over a fifth.

The reasons for the market's enthusiasm were clear in yesterday's interim figures. The first full period of Esab has raised pre-tax profits from pounds 20.3m to pounds 50.3m in the six months to June, with earnings per share more than doubled to 35.4p. The dividend is increased by 1p to 8.5p.

After having Esab for barely a year, Charter is on a roll. Margins at the acquired business have jumped from below 7 per cent to just under 11 - well ahead of Charter's target of achieving 10 per cent across the cycle. Meanwhile, gearing has tumbled from 91 per cent to 29 per cent, helped on its way by the sale of the coal equipment and aggregates businesses and the final proceeds from the JM stake.

Fresh from his triumph with welding supplies, chief executive Jeffrey Herbert is now ready to repeat the success elsewhere. Over the next year or so, Charter is ready to add a fourth leg, valued at anywhere between pounds 200m and pounds 400m, which would take the group into another international and industrial area of the world market. Given his current star rating with the City, Mr Herbert has chosen his moment well, although he will find it progressively harder to keep up this level of momentum.

While the influence of new owners helped, Esab's first-half margin performance owed most to strong markets. Highly geared to economic recovery in Europe, which accounts for 55 per cent of the business, Esab got a significant boost from a 21 per cent rise in sales there. The economic rebound in Brazil also helped, pushing local sales up a quarter, but the economy there is now slowing.

Full-year profits of pounds 103m from Charter would put the shares, down 15p at 917p, on a forward rating of around 13. That looks high enough while management proves the Esab deal was no fluke.

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