View from City Road: Charter turns intriguing

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The Independent Online
ANYONE who feels miffed at missing out on the Johnson Matthey placing should consider buying Charter Consolidated instead. The sale of Charter's 38 per cent stake in Johnson has transformed Jeffrey Herbert's industrial holding company from a dull but predictable investment into an intriguing but speculative play. The group's stake in the platinum fabricator meant that half Charter's market capitalisation, 60 per cent of its turnover and 45 per cent of its profits werer tied up in a company over which it had no control. Disposal of that holding leaves Mr Herbert and his team in charge of an assortment of engineering and aggregates-related businesses and about pounds 450m in cash.

The key question now for investors is how well and how fast they will spend it, especially given that the proceeds of the sale are currently earning less on deposit than they did when tied up in Johnson Matthey.

One option is to buy in the 36 per cent stake in Charter held by Minorco, the European investment arm of the giant Anglo/De Beers empire, at a cost of around pounds 250m. This would be a neutral option; mildly enhancing earnings but, with a pro forma net asset value of around 550p against a share price of 650p, probably diluting assets.

The assortment of businesses left after the disposal of the Johnson Matthey stake provides a few clues as to alternative courses of action. The jewel is Pandrol, which would account for around 40 per cent of profits following the deal. It is the world leader in the specialised rail fastenings business. Cape, Charter's building products business, which specialises in fire-resistant board, also has a good record, but less successful are the group's UK quarries and US coal mining interests.

There has also been talk of a bid for Vickers, the Rolls-Royce cars and Challenger tanks group, which has a market capitalisation of around pounds 320m. Mr Herbert's background at British Leyland and GEC would give him tools to tackle this nut.

Buying Charter's shares is an act of faith in its management. Mr Herbert has undoubtedly made a good impression, thanks to the skill and determination with which he forced through the Johnson Matthey sale. At 655p the shares make an interesting addition to a speculative portfolio.

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