Cookson and Invensys 'have no value'

The fear that stalked Rolls-Royce is enveloping the materials, aviation and technology industries after the events of 11 September
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The Independent Online

Cookson and Invensys have been identified as two of the most likely candidates for further corporate grief as the City tries to spot who will be next in following Rolls- Royce's strategy of dramatically cutting back it operations.

The aeroplane engine maker announced 5,000 job cuts – more than 11 per cent of its total workforce – as well as axing 1,000 contract workers. It also warned that profits in its core commercial aircraft side would fall by 50 per cent.

Rolls-Royce has been among the City's least favourite stocks since the 11 September disaster in New York. Analysts have pointed to cutbacks at its rivals Pratt & Whitney and GE and expected the same to happen at Rolls-Royce.

The search is now on for the next bearer of bad news.

Société Générale last week published a comprehensive strategy note looking at the European companies worst hit by the current economic conditions.

It sets out where it expects the share prices to fall and what a worst-case scenario could be. Both Cookson, the materials business, and Invensys, the heavily indebted engineer, are shown having a potential value of zero, implying they could go into receivership. On Cookson, SocGen says: "With a stretched balance sheet, a delay to the recovery could be particularly serious. The full-year dividend is likely to be passed."

On Invensys, the comments are even worse. "We have assumed the company fails to reduce debt and falls into the hands of its bankers."

Invensys has already admitted it is in danger of breaching its banking covenants and wants to sell up to £750m of businesses to cut its debts.

HSBC analysts produced a similar report on UK stocks, rating them on likelihood of a profits warning in the near future.

British Airways is seen as most vulnerable followed by BBA Group and Enodis. Both Cookson and Invesys are shown as vulnerable.

Both notes were published before the Rolls-Royce announcement and both argue that Rolls-Royce would be likely to warn on profits.

The Rolls-Royce news comes as it emerged that its main customer, Boeing, is making positive noises.

The US aircraft giant is pressing ahead with its international expansion programme despite the current crisis in the aviation sector.

Although the company has announced it will cut up to 30,000 jobs, these are almost exclusively in the United States.

Boeing is currently recruiting five senior executives who will separately head up operations in the UK, Spain, Italy, Korea and Japan.

The original plans were to expand operations in these countries, although job creation could now be slower due to the current situation.

It was also intended that the divisions look for partnerships, mergers and acquisitions in the areas.

A spokesperson for Boeing would not discuss the details of the expansion, as they said it was "early days".

However the spokesperson added that "the Boeing international plans continue as planned, and if anything the current situation underlines the importance of them."