The Investment column: Cable swap boosts shares

The slump in the European cable market has produced a shocking share price performance at BICC and Delta. So yesterday's deal to swap cable operations looks an eminently sensible move.

Delta appears to have got the best out of the deal in the short term. It gets a pounds 5m cash payment and cements its position in the building and construction market. More importantly by chopping costs and focusing the business, it becomes more saleable. Jon Scott-Maxwell, Delta's chief executive, has made no secret of the fact that the group's future does not lie in cables as it cannot hope to compete with the largest players on a European stage. This deal can only bring forward the division's disposal. So it is easy to see why Delta's shares jumped 18p to 265p on the news.

The response at BICC, however, was more muted with the shares edging up just 0.5p to 140p. Nobody is quite sure whether the cables market has reached the bottom. If it has, then BICC could emerge as the real winner from this deal, but it is a big if.All the big cables groups have taken huge amounts of capacity out of the market, but only time will tell if their actions have been enough to restore profitability.

The extent of the industry's problems have taken even the company by surprise. Despite chief executive Alan Jones' best efforts, BICC's shares have underperformed the market by almost 60 per cent over the last year and have fallen from 465.5p in 1994.

Analysts forecast 1997 profits at BICC of around pounds 110m, putting the shares on a prospective PE ratio of 15. The cable swap should help 1998 profits to rise to around pounds 135m. Despite the share price collapse BICC's shares still don't look cheap but it probably worth holding on in the hope that the illusive recovery is finally round the corner.