The Investment Column: Hepworth

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The Independent Online
IN A WEEK that began with the hottest day of the year, it's not pleasant to have to turn one's attention to boilers.

Unfortunately for Jean-Francois Chene, boilers are all he has on his mind.

He took charge of Hepworth, the heating and building products group, almost two years ago, with the job of turning around a group crippled by price deflation in the European boiler market. He's completed phase one of a restructuring programme, scrapping separate UK and European marketing operations for the business. Now the second phase is to begin, with the consolidation of Hepworth's manufacturing base.

Cost cutting has helped the shares rise from 135.5p to yesterday's close of 206.5p, up 20.5p. The group delivered flat interim sales as gains in the heating business offset falls in the drainage, minerals and home products divisions.

Whilst Mr Chene's aggression with the business is delivering - building products lifted profits on falling turnover - significant sales growth will only come from acquisitions.

Mr Chene knows this and there are plenty of candidates around, including Blue Circle's boiler business, to fill up his shopping list.

Merrill Lynch expect pre-tax profits of pounds 70.5m and earnings of 18.8p per share this year. Investors should not hold their breath for a deal and, whilst Hepworth's balance sheet is strong, there seems little reason to buy the shares before Mr Chene proves that he has found the right partner to take the group forward.