The Investment Column: Exciting changes afoot at Laporte

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The Independent Online
PERHAPS it is telling that only three journalists turned up for the press conference at Laporte. It is regarded by many in the City as just another boring company in a bombed out chemicals sector that has felt the full impact of the strong pound. The recent takeover of rival Allied Colloids provided a brief flutter of bid interest across the sector, but the argument goes that the long-term prospects for an oversupplied industry are hardly inspiring.

Laporte's share price performance certainly tallies with this view. The company has underperformed the market and the sector dramatically over the last five years. But, despite first impressions, interesting things are afoot at Laporte, which should produce an exciting chemical reaction.

In his two years in charge Jim Leng, Laporte's chief executive, has lead the group's renaissance by selling a third of the business, approaching half of its sites and shed 2,000 workers. These reforms helped underlying profits rise 12 per cent to pounds 132m in 1997, and saw the group beat its target of 15 per cent margins and a 25 per cent return on capital employed.

Impressive figures, and Laporte has impressive ambitions: to double the sales at its speciality and chemicals and electronics divisions over the next five years, to raise margins to a heady 17.5 per cent and return on capital to 27.5 per cent.

To do it Laporte will have to prove it can concentrate on profitable niches within a tough sector now most of its restructuring programme is complete. For example, its business supplying the pharmaceutical industry is growing rapidly. And coloured concrete is going down a storm in California, aiding pigment sales.

There are still some areas of concern. Although the group achieved organic growth of 5 per cent last year, the formulated products division is underachieving. The slowdown in Asia may also have a knock-on effect on sales.

However, the positives outweigh the negatives and, with a fair wind, Laporte's goals are in reach. The group's strong finances also give it the firepower to launch a sizeable acquisition of, say, pounds 500m.

Laporte's stock rose 17.5p to 741p yesterday. Analysts forecast current year pre-tax profits rising to pounds 139m, putting the shares on a prospective p/e ratio of 14. After a sharp rise in its price, Laporte looks less of a bargain that it did at the start of the year. However, there is still scope for further improvement. Good value.

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