The Investment Column : Disaster-prone Hickson puts the past behind it
Saturday 22 February 1997
Digging beneath yesterday's preliminary results, which showed losses slashed from pounds 45m to pounds 9.2m in the year to December, the trends look better than they have been for a while. The raw numbers need a little interpretation though.
Comparisons are flattered by the pounds 50.9m exceptional taken in 1995 to cover disposals and restructuring costs, a figure which has been cut to pounds 17m in the latest results. Stripping that out and the Hickson Manro surfactants business, whose sale led to last year's exceptional charge, underlying operating profits edged up from pounds 9.7m to pounds 10.5m. But even that is not the whole picture, because insurance recoveries after a fire in the group's PharmaChem business in Cork slumped from pounds 7m to pounds 400,000 between the two years. Sir James suggests the real underlying improvement at the operating level is therefore more like pounds 8m, reflecting the recovery programme instituted after a board clear-out in 1995. That is on course to deliver cost savings of pounds 8m a year by 1998.
Sir James also had plenty of progress to report on debts, which threatened to overwhelm the group last year when Hickson had to go cap in hand to its bankers. Borrowings have fallen steadily from the pounds 103m peak they hit in November 1995 and ended the year at pounds 56.4m.
The group has raised around pounds 50m from disposals over the past couple of years, but it is still signalling the need for one or more further sales to meet a commitment to lenders to cut debts by pounds 25m by the year end. Talks are thought to be under way with a number of prospective purchasers, but Hickson is coy about which businesses are on the block.
Success would leave gearing at somewhere below 30 per cent and the group better placed to capitalise on the PharmaChem site. That is still running way below former capacity levels after the fire and the major loss of business in the wake of the Persil Power accelerator debacle, but Hickson is making progress in rebuilding the operation and is now boasting work for five of the world's top 10 drugs companies. Trading losses last year are thought to be around half the pounds 8m racked up in 1995 and PharmaChem should be profitable by the year end.
There is also progress to report in the group's other problem area, the Castleford operations of the Hickson & Welch chemical intermediates business. New management and new contracts with the likes of Du Pont helped profits more than double to pounds 5m.
James Capel has raised its forecast for this year from pounds 10m to pounds 11.5m, despite an expected pounds 1.5m hit for currency, putting the shares, down 0.5p at 66.5p, on a forward multiple of 12, dropping to under nine.
The recovery potential is strong, but the sector is out of favour and a US price war in wood preservatives could prove a damper on Hickson's business. Hold.
Appetite for Nord Anglia
The boom in the stock market is leading to a predictable flood of new issues, but Nord Anglia Education is one that should stand out proud of the torrent. Founded 25 years ago by the executive chairman Kevin McNeany, the group claims to be unique in being the only substantial UK operator of private educational establishments and provider of "outsourced" educational services. Mr McNeany is nailing his colours to the business by selling only pounds 700,000 worth of shares in this month's flotation and agreeing to a two-year lock-in for his remaining 45 per cent stake, worth pounds 8.1m at the 140p a share placing price.
The group is planning to raise pounds 5.75m for itself in the float and pounds 3.55m for existing shareholders, mainly venture capital backers Charterhouse and the Royal Bank of Scotland, both of which are baling out completely after seven years. Mr McNeany said "the appetite for the shares has been near breathtaking" and he certainly talks a good story.
Pre-tax profits have grown from pounds 991,000 in 1994 to pounds 1.63m last year. The group's broker, Henry Cooke Lumsden, is forecasting pounds 2.1m for the current year to August, putting the shares on a forward p/e of 14 at the placing price.
That looks reasonable in the current state of the market, but valuing Nord Anglia is tricky, given the lack of similar businesses against which to compare it. The main profit earner last year was 15 private schools in the UK and three established in Moscow, Warsaw and Prague over the last few years. But although the schools division chipped in pounds 1.15m last year, the backwash of the recession is slowing growth in traditional activities and the main excitement lies elsewhere.
The provision of outsourced local and national government services, from inspectors for Ofsted, the schools' watchdog, to lecturers for colleges of further education, has grown from nowhere to profits of pounds 181,000 last year.
Given growth rates in excess of 15 per cent, this business could be providing half the group's bottom line in two years. The presence of the former government minister Sir David Trippier on the board should help in that aim.
Mr McNeany talks of eventually taking over the running of local authority schools, but in the meantime is building a chain of all-day nursery schools. Operating in a highly fragmented market and with returns on capital of 20 per cent, that could prove most fruitful.
Worth picking up for any investors who can get hold of the shares.
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