Investment Column: Cookson

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The Independent Online
COOKSON, THE company which makes the plumbing for steel works and constructs circuit boards for mobile phones, has had quite a run. The shares have steadily climbed from 120p in January and closed up 3.5p at 219p yesterday. Indeed, since May, when it announced it was buying out a US rival for pounds 252m, the shares have added 20 per cent. Can such performance be sustained?

Its chief executive Stephen Howard is confident that the downturn in his main electronics and steel markets has bottomed. The fall in quarterly year-on-year growth rates is showing signs of reversal. The company exploited the downturn in the steel industry following the Asia crisis to make acquisitions and believes it is in a two horse race against RHI, its Austrian rival. Now it plans to pick out rivals in its electronics markets and has a sizeable shopping list.

On the downside, Cookson put another business up for sale yesterday, its fibre-optic cable arm, Focas. Perhaps something else will emerge as underperforming. And when there are just two large companies in the same market, they tend to adopt the same strategy. In steel, that will mean RHI and Cookson slashing prices. Moreover, Cookson will not be alone in seeking out struggling electronics businesses.

Analysts expect pre-tax profits of pounds 140m and earnings of 14p per share this year, putting Cookson on a forward p/e of almost 16. Although that's not up with the larger engineers like Invenys, it's well ahead of most of the sector. When exactly the steel industry recovers is anyone's guess and cautious investors in Cookson may wish to take some of this year's profit.