View from City Road: Change of tack by Hanson

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The Independent Online
What price Hanson as industrial manager? If yesterday's admission that it can get a better return from investing in existing businesses than buying new ones is to be believed (and some would say it is simply piqued at having missed the boat) the City will have to stop attaching its name to every bid rumour and start considering its ability to squeeze extra out of existing businesses.

Yesterday's figures give it some credibility; holding trading profits steady is no mean feat in the face of the recession. It is also trying hard to present an industrial strategy - add- on acquisitions, such as the US housing purchase that complements Beazer's business will become an increasing feature, geographical expansion will be more common. It is even putting a higher priority on capital expenditure - up pounds 50m at pounds 160m in the first half, but at 3.3 per cent of sales, it is still hardly excessive.

The market has still to be convinced. In the past three years, when doubts first started emerging, Hanson has underperformed BTR by about 30 per cent - and BTR's market capitalisation overtook Hanson's for the first time earlier this year. Yet both have completed similar sized acquisitions - Beazer for Hanson and Hawker Siddeley for BTR - if debt is included.

But BTR is accustomed to displaying its industrial management skills. Disposals have rarely been part of its strategy (although, paradoxically, there are signs that new boss Alan Jackson is changing that), while Hanson has only recently deigned to disclose what it makes from asset trading. BTR also relies far less on provisions.

True, the scale of the Hawker ones raised some eyebrows, but they were as nothing compared to the pounds 1.3bn following the Beazer deal. And the pounds 393m provisions on BTR's balance sheet pale into insignificance compared with Hanson's pounds 4.9bn. The impending crackdown on provisioning means Hanson will have to be far more careful about future acquisitions, but the scale of the remaining provisions will remain a worry for some years to come.

It is far more difficult to be creative with cashflow, so the strong cash generation revealed in yesterday's figures offers some comfort. More is needed, however. Despite the fact that most of its businesses are geared to recovery, Hanson's shares stand at a discount to the market, and it yields almost one-and-a- half times the average. But the safety of that generous dividend makes the shares worth buying.