Diverse but dependable

Despite setbacks, BTR's ever-changing but finely tuned operation should stand it in good stead
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The Independent Online
SHAREHOLDERS in BTR, the industrial holding company, have been hit by some low-flying turbulence over the past few weeks. On Wednesday, its shares hit a three and a half year low, of 264p, in heavy trading - down from 278p at the start of the week. Indeed, the shares have been under pressure ever since the company issued a profits warning in May.

New chief executive Ian Strachan lays the blame on BTR's Taiwanese polymers business, a star performer in 1995, and its American sealing systems division. The latter, however, can expect to pick up with the introduction of two new car models in the States: it will provide all the seals for the new Chrysler van and the Ford light pick-up truck under five and six-year contracts. And Taiwan is one of the businesses BTR will almost certainly sell as it focuses on core operations.

Nevertheless, analysts cut their estimates of full-year profits from pounds 1.45bn to between pounds 1.39bn and pounds 1.41bn, against the pounds 1.5bn it made last year on sales of pounds 9.8bn.

The share price drop, however, also marks the unease with conglomerates after the whole sector caught a cold over the last year or so. An old chestnut this, but BTR has not entirely escaped the disenchantment, whose roots lie with one-time sector king, Hanson.

Having been one of the best- performing shares in the past, Hanson has been caught up in a worrying circle of declining cashflow, with pressure to cover the dividend. The result is a demerger that few can find much to enthuse over.

Sure, there are similarities between Hanson and BTR. Both made their name in the Seventies and Eighties - BTR under the much feted chief executive, Sir Owen Green, who only retired three years ago.

But is the latest price collapse a temporary blip, or does it signal worse to come? The pundits fear BTR's glory days are over. But the consensus, nevertheless, is of a dull, utterly safe hold.

Against that is the prospect that BTR has reached a similar position to Hanson's: too big to generate the kind of deals that allow it the rates of growth it once enjoyed. If so, the company will find itself on a treadmill, always stretched to find the next deal, but unable to provide the sort of returns shareholders expect. It is too soon to see root-and-branch medicine being required at BTR. Nevertheless, that sort of unease is justified.

Direct comparisons with Hanson, however, are misleading. BTR has changed tack much in the past few years. Its emphasis on niche businesses with near monopoly status has been replaced by a desire to focus on areas where it can operate globally and be a world beater. The spadework was laid by Alan Jackson, Mr Strachan's predecessor. And Mr Strachan confirms this is the strategy he will continue to pursue.

In its last report and accounts, BTR boasted 22 divisions in all, with names from Formica to Hawker Siddeley. Packaging, the largest, had sales of almost pounds 1bn, with products ranging from glass bottles to plastic cartons for milk and fizzy drinks.

BTR has always been hard to keep abreast of, given the staggering range of businesses in which it operates, and the bewildering pace with which it continues to shuffle its deck. Its biggest move last year was the pounds 2bn buyout of the 38 per cent minority stake in Australian quoted BTR Nylex, in the hope of gaining a solid platform to spearhead its thrust into Asia. But it also sold its Dunlop Slazenger business, as well as 19 other businesses which did not fit - while buying eleven more, Nylex excluded.

However, there seems to be a method to the latest strategy, with its shift away from consumer items to serving a broad range of industry. Given its size, in many ways, BTR can only hope to be a proxy for the economies in which its has a presence. With OECD economies set to expand at 2 to 3 per cent a year, and given that 90 per cent of sales are in these areas, the problem becomes clearer. However, it is making strenuous efforts to develop a presence in the emerging, fast-growing economies of Asia and South America. Sales in the latter have grown fourfold since 1991, and will double this year, with the additions of automotive suppliers Metalurgica Carbo and OSA. Construction, commercial interiors and aggregates are all for sale.

Overall, there is much going for BTR. Its moves into Asia and Latin America show that nimbleness and risk-taking have not yet deserted the board. The fall in the shares is overdone: long-term growth is still attainable, even if not at the heady rates of yesteryear.

With a positive dividend outlook, the shares are a buy, for the long- term - if only for the yield.


Share price 269p

Prospective p/e 11.9

Gross dividend yield 6.7%

Year to 31 December 1994 1995 1996* 1997*

Turnover (bn) pounds 9.44 pounds 9.78 na na

Pre-tax profits (bn) pounds 1.078 pounds 1.503 pounds 1.430 pounds 1.550

Earnings per share 24.5p 26p 24.3p 24.9p

Dividend per share 13.5p 14.7p 15.1p 16p

*Panmure Gordon forecasts