Outlook: ICI

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The Independent Online
CHARLES MILLER SMITH had the good fortune to pick a day when the stock market was, for once, not in a headlong plunge to launch a new attempt at persuading the world that ICI is far from being a basket case.

For much of the past year the investment community has preferred not to believe him. But yesterday something unusual happened. The Footsie gained 4.4 per cent and, even more remarkably, ICI shares put on 6 per cent. For the first time since July's profits warning the mood at 9 Millbank has begun to lift. In the last three months ICI has halved in value while its shares have underperformed the market by 40 per cent. The business is now worth only pounds 3.3bn - a fifth of the value of Zeneca, which was very much the junior partner at the time of the demerger five years ago.

Shortly after his arrival from Unilever, Mr Miller Smith bought the speciality chemicals business that he used to run at his former employer and began disposing of ICI's lumpy bulk chemicals businesses. To begin with, that strategy went down well in the City, but then doubts began to creep in.

On the face of it, spices, starches and flavourings looked a better bet than industrial chemicals - they looked less cyclical and potentially higher growth. Unfortunately, the transformation also left a balance sheet groaning with pounds 6.3bn of debt, while interest cover has been whittled down to a little over two times earnings. Worse, the City has begun to wonder whether ICI had simply swapped one set of accident prone businesses for another.

The good news yesterday was that ICI reckons disposal proceeds will restore the fire power in the balance sheet sufficiently to get interest cover back to between five and six times. Meanwhile, Mr Miller Smith is educating the ICI board about a whole new world of bioscience and sensory science which, he says, will help deliver15 per cent margins out of speciality chemicals.

For once investors seem prepared to believe him. But the climb back to credibility remains a long one. Yesterday's rally could just as easily turn out to be a dead cat bounce for ICI as for the stock market.