The Investment Column: BOC is still left with problems

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The Independent Online
BOC's sale of its Ohmeda healthcare business gave some comfort to shareholders yesterday. After a terrible run, which has seen BOC's market value fall by a quarter since last August, the shares perked up 19p to 883p.

The pounds 640m price tag is at the lower end of the initial estimates of between pounds 600m and pounds 800m when the business was put up for sale last July, and well below the pounds 1bn some, rather optimistic, analysts had forecast since.

However the price looks a fair one. Ohmeda made a pre-tax profit of pounds 44.5m in the year to the September 1997, but only pounds 18.4m came in the second half of the year. Assuming a 25 per cent tax charge the exit price represents 19.1 times historic earnings or 23.2 times annualised earnings from the second half of the year, which is not bad for a business with dwindling profits.

And the deal will enhance earnings. The proceeds will be used to reduce borrowings and the interest saved will be worth more to BOC than the expected profit from Ohmeda this year.

However, the sale only solves part of BOC's problems. Chief executive Danny Rosenkrantz has no immediate plans to reinvest the proceeds, or to use the money to buy back shares.

Meanwhile the two main problems which have helped drive the shares down show not signs of easing. The adverse impact of a strong sterling on the group's overseas profits has not reduced, and the effects of the Far Eastern financial crisis on both sales and profits has worsened.

Profits have been static for the last few years and 1998 should be no exception. Analysts who were once expecting profits to reach pounds 490m for the 12 months to September are now looking for just pounds 450m, which puts the shares on a prospective p/e of 15. High enough.