Investment Column: BTP shares deserve better

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The Independent Online
No wonder Steve Hannam, chief executive of BTP, sounds weary. This speciality chemicals group has consistently delivered impressive results in tough markets. Over the last four years BTP has grown pre-tax profits by 135 per cent, earnings per share by 62 per cent and dividends by 43 per cent.

Even after a pounds 5m currency hit, pre-tax profits in the half year to September rose 6.3 per cent to pounds 25m. So how come shares in this company, ahead 2p to 337.5p yesterday, have underperformed the market by 7 per cent this year?

True BTP has been the best performing stocks in the chemical sector and its rating is improving. However, its shares deserve better. BTP's core business is supplying chemical intermediates to pharmaceutical and agrochemical companies - a relatively counter-cyclical business.

These chemicals go into making new drugs, not generics, which means good margins - typically more than 20 per cent. With pharma groups increasingly outsourcing drug-making to focus on research and marketing, demand for chemical intermediates is growing fast.

BTP is also a big player. Through acquisitions it has built up a chemistry set enabling it to handle more and more steps in the drug-making process, making it a valuable partner to its customers.

With the imminent sale of adhesives reducing gearing from 60 per cent to less than 10 per cent, BTP has room to keep buying. Mr Hannam believes the company could double in size in less than five years.

Its other businesses supplying chemicals to de-bug beer and cosmetics are also in good shape, while safety equipment churns out useful cash. The group's yield of around 5 per cent is attractive too. A forward ratio of 15 is not demanding. Stuck in the unloved chemicals sector, the biggest risk with these shares is inertia. However on fundamentals, BTP has further to run.

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