Conglomerates tarred with same brush
Companies like Williams and Hanson have changed their spots as a result and now tout themselves as business managers rather than deal-makers. The market has remained unimpressed and, after outperforming the All Share by 15 per cent between 1991 and 1993, they have steadily undershot the average ever since.
Research from Smith New Court takes issue with the broad-brush dismissal of the sector, however, suggesting that the factors continuing to hold back the big four conglomerates - Hanson, Williams, BTR and Tomkins - cannot fairly be applied to a raft of smaller groups for which the last five years have provided excellent returns.
While the net performance of the big four over the past five years has been to match the All Share, an index comprising Wassall, Berisford, TT and Stratagem has outperformed by an impressive 75 per cent over the same period.
Smith New Court puts this differential down to the natural life cycle of conglomerates whereby companies initially grow fast through acquisitions, then settle down to a period of less dramatic organic growth and finally fall victim to decadence and break-up.
This is a plausible argument. As companies grow, it becomes increasingly difficult to find undermanaged or underpriced businesses of a sufficient size to make a mark on the group as a whole. The big four are clearly in the second phase of the cycle.
The smaller companies, whose market values range from Stratagem's £32m to Wassall's £472m, still appear to have plenty of growth left in them. All have made interesting acquisitions recently and are expected to continue to do so.
Even though the group as a whole has produced historical earnings growth well in excess of the market average and is expected to continue doing so, the shares stand on prospective p/e multiples at or below the market's.
Either the market does not believe the growth expectations or it is attaching a high-risk premium to the shares. Obviously, the rate of earnings growth will slow as the companies increase in size and follow the larger conglomerates into the mature phase of the cycle, but that is a way off yet.
As for risk, there is nothing to suggest that any of the four wannabes are intrinsically any more dangerous than the market as a whole. It would be foolish to write-off the conglomerates en bloc.
- 4 Women think Irish men are the sexiest, survey finds
- 5 Florida couple forced to register as sex offenders for having sex on public beach
Italian police 'reveal' what Jesus looked like as a young boy
Who should I vote for in the general election? Take The Independent's interactive quiz to find out which party is the right choice for you
Florida couple forced to register as sex offenders for having sex on public beach
Mysterious 'X-Files' sounds heard miles above the Earth
US gameshow gives woman in wheelchair incredibly awkward prize
In defence of liberal democracy
General Election 2015: Post-election 'shambles' looms as 70 per cent of voters say SNP 'should not be able to veto UK government policies'
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...
£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...