The Investment Column: Cookson has lots of potential

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The Independent Online
Dick Oster, the cigar-chomping former American football player, has had plenty of opportunities to voice his ebullient optimism in the five years since he started dragging Cookson back from the brink of oblivion. For a man of his temperament, the past six months at the electronics, ceramics and plastics group must have been extremely trying.

Since April, when the shares traded at 327p, it has been downhill all the way with a slump in the US electronics market clobbering Cookson's flagship operation which makes circuit board manufacturing machines. For a company that proudly trumpeted plans to double profits in three years and triple them in five, the recent 5 per cent increase at the interim stage was a washout.

It was hardly surprising, when the shares bottomed out at 208.5p recently, that takeover speculation should bubble up in a frenzy of gossip that brought Siemens, BBA, Charter, and even joint venture partner Johnson Matthey into the frame. No surprise either that, when the bid failed to materialise yesterday morning, the shares should fall 10p to 226.5p.

Cookson managed during 1995 to decouple itself from the out-of-favour conglomerates it most closely resembled, but 1996 has seen it clumped in with the likes of Hanson and BTR again. That is slightly unfair, given the strength of some of its companies. Like BTR and Hanson, it runs a broad portfolio of businesses, but, unlike its peers, it tends to operate in areas of high potential growth. The circuit board business has been hit by destocking, but it remains fundamentally attractive with computer chips finding themselves in a bewildering and growing array of consumer products.

There are ongoing problems at Cookson, with the electronics slowdown coinciding with a deteriorating cash position. Gearing has breached the previous ceiling of 40 per cent and a new 50-60 per cent range has been introduced. On the basis of forecast profits this year of pounds 171m and pounds 200m next time, the shares trade on a prospective price/earnings ratio of 13 falling to 11. At that level the good businesses in Cookson receive scant recognition and the shares are good value.