Dramatic day for BOC: The Investment Column

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The Independent Online
BOC has made much of a drive to explain its diverse industrial gases, healthcare and distribution businesses to investors and, judging by yesterday's share price movement, the message is finally getting through.

The headline figures looked bad as BOC warned that the impact of the 25 per cent surge in the value of the pound had knocked pounds 10m off operating profits in the three months to December. Pre-tax profits edged up by less than 2 per cent in the first quarter to pounds 102.7m. Turnover, excluding BOC's share of related undertakings, was 1 per cent lower at pounds 893.9m. If sterling stays at current levels, the total impact on full-year profits would be around pounds 35m and the markets took immediate fright yesterday with the shares down 10p at one point.

Drama is not a word normally associated with BOC, yet by the close of trading the shares had staged a remarkable turnaround, ending the day with a rise of 21.5p to 959.5p.

The devil, as always with BOC, is in the detail and behind the grim-looking sterling impact lies an encouraging trend in underlying profitability. About pounds 22m of the anticipated full-year hit from the high pound relates to the translation of dollar and other currencies into sterling. The actual cash impact is likely to be smaller, in the region of pounds 15m. Another reason for the share price surge was interest from US investors since last autumn's listing in New York.

Meanwhile, the other two problem areas, the Edwards vacuum business and healthcare operations, are being tackled. Last year the shares plunged on the world-wide collapse in the computer memory chip market, which the vacuum business depends upon for its earnings. Now it would appear to be close to bottom. BOC also looks to be getting over the 1993 loss of the patent on its anaesthetic drug, Forane. Five years ago Forane made annual profits of pounds 123m, while the rest of the healthcare division lost pounds 24m. Last year Forane's earnings were down to pounds 20m, while the other businesses made pounds 53m.

And behind it all lies the sleeping giant, the gases division, which accounts for the lion's share of profits. BOC predicts world demand growth for gases will be some 2 per cent higher than GDP growth. BOC's presence in the Far East is strong, while it has plenty of opportunity to grow in continental Europe.

Including sterling's impact, expect profits this year to be static at pounds 450m, with earnings per share of 58p and a prospective p/e ratio of 16. About right.