The Investment Column: Burmah keeps its foot down

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The Independent Online
THERE are many factors which have taken revs out of the Burmah Castrol's share price: a soaring pound, increasingly mature western markets and economic turmoil in the Far East. But the lubricants to chemicals group which powers (and sponsors) the highly successful Williams Formula One racing team still has its foot firmly down on the accelerator.

Yesterday it announced a higher than expected 7 per cent rise in pre- tax profits to pounds 279.7m for 1997 and its shares roared ahead 69p to 1170p. Investors stand to benefit further from a pounds 250m share buyback, although for tax reasons this will not be executed until after April 1999.

Competitiveness is growing ever more intense in the mature North American and European markets. But innovative marketing, tight cost controls and supply chain efficiencies leave Burmah Castrol scope for growth.

The group is in the middle of a radical restructuring as its management slims back the company to concentrate on core businesses. The chemicals division is being repositioned with the disposal of the adhesives and metal carboxylates divisions. A 50 per cent stake in a liquid gas project and a 64 per cent holding in Pakistan Petroleum have been discarded while a small number of other peripheral activities, like fuels in Ireland and Belgium will eventually follow.

And although Burmah Castrol was hit by the economic turmoil in South- east Asia in the last quarter of 1997, it has escaped the worst of the region's problems. 1998 will see the company's Thai and Malay activities struggle a bit but the overall impact on group profits will be slight. Now Burmah Castrol is planning a big push into China.

The strong pound knocked pounds 42m off operating profits in 1997 and will continue to hit the company hard this year. Broker Robert Fleming predicts 1998 post-tax profits of pounds 154m compared with pounds 160.2m in 1997.

At constant currencies, pre-tax profits would have been up 23 per cent last year and underlying earnings should continue to grow strongly. Sitting on a forward multiple of 15 the shares remain good long-term value.