View from City Road: Hanson back to what it does best

IT IS quite like old times. What with economic policy in limbo and Hanson reverting to what it does best, which is making acquisitions, it is easy to think that we are at the beginning of the Eighties rather than the Nineties.

Hanson has been talking about expanding on the Continent; about making strategic purchases to add to existing business and making agreed bids. But this might as well have been just idle chatter - the old Hanson is back.

After the ICI debacle the company attempted to create a new image.

But the effect soon wore off as Hanson's shareholders wondered what it would do next. Judging from yesterday's reaction, which saw the shares fall just 5.5p to 202p in a dismal market, investors like the chosen course of action, though they may still be unhappy about Robert Hanson's elevation to the board.

It is easy to see why. RHM has been involved in a series of running battles over its independence since the early 1980s, but unlike Goodman Fielder Wattie or Sir James Goldsmith and his chums Hanson seems to have got its timing just about right.

This year's flour price increases have held up, and while hurting RHM's baking operations, this could cause greater pain to the independent bakers that are the bane of its life and that of Associated British Foods.

A cut in capacity could swiftly revive profits in milling and baking, which are set to slide from pounds 60m to pounds 20m in the year ended 31 August, dragging RHM's pre-tax profits with it.

If this is so, then a price-earnings ratio of 12.5 at 220p, assuming pre-tax profits of pounds 90m this year, is even meaner than it looks.

The problem of brand values will loom large in the forthcoming campaign. RHM includes a valuation of pounds 608m in its last balance sheet compared with the pounds 781m bid for the whole company.

No one outside Interbrand, RHM's consultants in this arcane and controversial affair, has much of a clue how useful these valuations are. Certainly RHM insists that, whatever else, they are nothing to do with the open market.

So RHM may well try to argue that Hanson, after auctioning off the grocery brands, will be able to lay its hands on the pounds 700m baking and milling business for nothing.

A counterbid looks unlikely but RHM shareholders have little to lose by holding on for the defence.