View from City Road: Hanson's targets are incompatible

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The Independent Online
HANSON is every bit as conscious as its shareholders that it must try to boost its share rating. This explains why it has proclaimed an interest in buying Canary Wharf and British Coal. Hanson is keen to be seen to be doing something.

Its shares are trading on just 10.9 times prospective earnings at yesterday's closing price of 198p, down 0.5p, compared with about 14 times for the market as a whole. This week's third-quarter results - expected to fall from pounds 380m to pounds 275m - will underline investors' worries.

The problem is that some of the supposed solutions to its problems would not have the desired effect. Others are impracticable. Demerging its UK and US businesses, changing domicile and selling non- core businesses were all ruled out yesterday. This is because the tax cost of such moves means Hanson is worth more, not less, than the sum of its parts, unlike ICI.

In 1991, its overall tax rate was an enviably low 21.5 per cent, but in the UK it paid a crippling 44 per cent tax - roughly equal to advance corporation tax on its dividend - but just 18.9 per cent in the rest of the world, mainly the US. That is partly because much of its debt is over there while its cash is over here.

The rules on offsetting ACT mean its UK arm would have to have taxable profits of at least pounds 700m - pounds 300m more than its 1991 operating profits - just to get its tax rate down to 25 per cent. But the US businesses are unlikely to be willing to be saddled with more than their fair share of debt.

What worries shareholders is that the company remains content to advertise its interest in projects that look incompatible with its businesses and approach. With Canary Wharf, the group appears prepared to get into potentially dangerous territory.

That does not mean the market would not like a deal - Hanson-watchers are hoping the recession will eventually bring bargains. Its shares have outperformed by 5 per cent since it paid pounds 1.5bn for Beazer, despite fears that it may have moved too early and got even more heavily into assets at a time when prices are static or falling.

That contrasts with BTR, whose shares have outperformed by 17 per cent since it acquired Hawker Siddeley for pounds 1.55bn and embarked on its conglomerate-style rationalisation programme.

Until Hanson shows that it too has a more traditional acquisition target in mind, the shares are likely to be dull.

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