The Investment Column: BTR set for a new dawn

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The Independent Online
IAN STRACHAN has made five results presentations to the City since taking over as chief executive of BTR just over two years ago. The previous four times, investors gave his presentation of BTR's strategy and prospects the thumbs up, only to find themselves on the end of a profit warning a few months later. Over the same time, the reformed conglomerate's shares have lost 45 per cent of their value.

As a result it's no surprise that investors reacted cautiously to yesterday's full-year results, pushing the shares down 4.5p to 187p. The figures were in line with expectations after last December's profit warning. Sales from the engineering group - the businesses BTR intends to keep - rose by 11 per cent to pounds 4.9bn when adjusted for the stronger pound, while operating profits slipped to pounds 774m, down 2 per cent on a constant currency basis.

Mr Strachan likes to talk about BTR as a focused growth engineer, leading its markets and expanding its sales by constantly developing innovative products. But while he can give convincing examples of BTR subsidiaries doing just that, the numbers paint a different picture. In three of BTR's four key divisions, profits fell while sales increased. And the 8 per cent profits hike in Control Systems was largely down to the first-time inclusion of recent acquisitions.

BTR argues that these drops are down to specific factors: turmoil in South East Asia, sterling squeezing exports, and cost overruns on signalling for the Jubilee line. But there is a broader trend. Slowly but surely, Mr Strachan is changing the old BTR culture of concentrating on niche markets, expanding margins as far as they will go and never investing. The problem is that, while the supertanker is being turned around, BTR's profit margins will fall. Last year, the company's engineering businesses made a return on sales of 15.8 per cent. In the long term, they will end up some way lower.

So what is BTR worth? Monday's pounds 2.2bn sale of the packaging businesses wiped out net debt, while the remaining peripheral assets should raise at least another pounds 1bn. That means BTR's continuing operations currently trade on a PE ratio of less than 10. Given the added comfort that Mr Strachan has already pledged to give pounds 2bn back to shareholders, the share price rating looks undemanding even if BTR produces no profit growth at all in the coming two years. There have been many false dawns, but this really does look like the bottom for BTR. Buy.

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