View from City Road: Hanson has much to be proud of

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THE most surprising thing about the glasnost that has accompanied Derek Bonham's elevation to chief executive of Hanson is that the company never thought to try it before. In the month after February's presentation to analysts and investors, its shares outperformed the market by about 14 per cent. And analysts came away from yesterday's first-ever results briefing similarly enthusiastic, although that has not yet been reflected in the share price, which lost early gains to close 0.5p lower at 236p.

The first fall in pre-tax profits, down pounds 30m to pounds 1.286bn in the year to September, is undoubtedly a blow to its corporate ego and the underlying performance - excluding the disposal gains which now have to be taken above the line - was only ahead courtesy of an pounds 80m contribution from Beazer. But, given that more than half its sales come from recession-hit, mature industries like chemicals, construction and cigarettes, there is much to be proud of.

Barring acquisitions - Hanson is clearly champing at the bit - a return to growth in the current year will be hard. Lord White is cautiously optimistic about the US economy and the dollar's strength will help. But trading in the UK remains bleak and the pounds 28m boost to profits from the investment in tobacco will presumably not be repeatable. The group seems confident that, despite falling interest rates and a shift from pounds 350m cash to pounds 774m debt at the year-end, it will match the pounds 44m interest earned, but there are unlikely to be significant disposal profits.

It will also lose the pounds 88m advance corporation tax benefit from the move to quarterly dividend payments, which will push the rate up from 15.3 per cent to about 26 per cent. The ACT boost kept last year's reported earnings moving ahead from 21.7p to 22.2p a share. This year, they are likely to fall to about 18p.

That puts the shares on a forward multiple of 13 times earnings, a discount of more than 10 per cent, while the yield - courtesy of an unexpected increase in the dividend to 2.85p (2.75p) a quarter - is 6.4 per cent. The City will be nervous ahead of the next deal, but the shares look attractive on the rating and medium-term recovery prospects.

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