Hanson on hunt for next big deal

The Investment Column

Ever since Hanson announced the demerger of 34 of its American businesses in February, the stock market has been awash with rumours about where the acquisitive conglomerate might strike next.

The company fuelled speculation yesterday when it said it would not restrict its search to its existing areas of business if "the big deal" opportunity presented itself. Any lumbering big game could be the target of a Hanson poacher's dart, with the company keen to repeat the phenomenal success of its $3.4bn (£2.2bn) Quantum chemicals purchase in 1993.

It was Quantum which proved the driving force behind Hanson's 58 per cent hike in operating profits to £745m in the six months to 31 March. Pre-tax profits fell to £623m from £682m, but the comparative figure was inflated by exceptional gains of £331m.

Cost reductions as well as continuing investment in new processes and equipment boosted Quantum's margins, driving profits up to £213m. Hanson, not the greatest investor in its businesses, has even earmarked $438m in capital expenditure for Quantum and SCM Chemicals over the next three years.

That focus on running businesses rather than simply dealing in them has transformed Hanson in recent years. In many ways, it has shaken off its defensive image and become a more cyclical play, highly geared to the recovery in the UK and the US. That is good news in the short term, with analysts predicting operating profits to top £2bn by 1997. But what then?

Though coal and tobacco are defensive sectors, Hanson may need a big deal to insulate it from a downturn. The problem for investors is that some of Hanson's hostile tilts, such as ICI and Imperial Tobacco, have caused more mud-slinging than they have been worth.

Panmure Gordon is forecasting full year profits of £1.32bn and earnings of 19.4p for the full year. With the shares down 3p to 248.5p, that puts the stock on a forward p/e of 13 - about right while the market waits for that deal.