The Investment Column: Cookson shapes up after disposals

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The Independent Online
COOKSON yesterday made its first significant step towards salvaging its battered reputation in the City. The accident-prone industrial components group has produced one disappointment after another over the last few years. If that was not enough, its share rating has suffered from the dreaded conglomerate discount in a sector tainted by high-profile casualties such as Hanson.

But Stephen Howard, Cookson's new chief executive, has set about disentangling the sprawling group with gusto. He has already raised pounds 140m from sales and could get at least another pounds 100m from its fibres business, which supplies the carpet industry.

This sale marks the end of the main disposal programme. The business has been slimmed down and simplified to three divisions: electronics, ceramics and engineering.

Cookson can comfortably spend pounds 400m on new acquisitions. Return on capital employed is finally moving towards cost of capital, implying it is using its money far more wisely. However, the real way to restore faith in the group will be to prove that it can start producing strong and consistent organic growth from the businesses it has left.

The group is beginning to move in the right direction. Cookson shrugged off a pounds 12m hit from the strong pound and the economic turmoil in the Far East to produce a credible 8 per cent rise in underlying profits to pounds 179m in 1997. There are fears the Asian crisis will begin to bite into earnings this year. However, Cookson appears not to be as vulnerable as most electronic groups, being less exposed to the cheaper consumer goods markets. In fact, with prices tumbling, it is even eyeing up more acquisitions in Asia. A greater emphasis on service should also bring an improvement in group margins.

Cookson's shares rose 13.5p to 240p yesterday after it calmed fears over Asia. Analysts forecast full-year profits of pounds 193m, putting the shares on a prospective p/e ratio of 11. Cookson looks to have turned the corner. Good value.