Laporte's single strategy pays off

Laporte has never looked back since it put the final touches to its reshaping as a specialist chemicals group in 1992. The subsequent steady, if unspectacular, rise in both profits and earnings have vindicated the decision to unwind the 21-year joint venture with Belgium's Solvay and to get out of commodity areas such as hydrogen peroxide.

Yesterday's interim figures, showing pre-tax profits rising 14 per cent to pounds 67m in the six months to 2 July, maintained the recent trend. Laporte has not eased in its quest to move the group into higher margin areas with commanding positions in their markets. It is still sorting out Evode, the adhesives group picked up for pounds 130m in 1993. Since the year end, it has announced the sale of three of Evode's laminates businesses and, separately, a paper chemicals subsidiary, which will together bring in around pounds 48m.

The strategy has left it with some exciting businesses, of which the star is arguably organic specialities. Making intermediate chemicals for pharmaceuticals and peroxides for the petrochemicals industry, it now makes the highest returns on sales in the group, raising margins well over 1 point to 16.8 per cent in the latest period on the back of booming demand.

Current capacity constraints should be eased by new facilities on Teesside coming in early next year, which will raise production 50 per cent. As a result of that spending, the division accounted for well over a third of the group's total first half capital expenditure of pounds 31.5m.

Electronic chemicals is another business which has all the makings of stardom. Its half-year performance was masked by being lumped in with plastic compounding, which suffered a margin squeeze as a result of the soaring cost of PVC and other raw materials. But electronics profits up over a fifth contributed to a healthy 18 per cent jump in the division's profits to pounds 20.6m. Laporte's strength in the ultra-pure chemicals required for silicon chip manufacture makes it well placed to cash in on the booming electronics industry.

The only fly in the ointment is with its new portfolio of niche businesses; Laporte has taken on the characteristics of a chemicals conglomerate, making it difficult for all cylinders to fire at once. In the first half it was hygiene and process chemicals business, where raw materials pressures and restructuring shaved pounds 1m from profits, which slipped a bit. In the second, North American building chemicals could be the laggard after a 9 per cent profits fall in the opening half of the year.

The shares have soared since the announcement that Jim Leng, chief executive of paper and packaging group Low & Bonar, is to move to Laporte. With profits only likely to creep ahead pounds 4m to pounds 136m this year, the shares, down 5p at 809p, look fairly valued on prospective p/e ratio of 16.