View from City Road: The markets misread BTR

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The Independent Online
Alan Jackson, chief executive of BTR, should spend the weekend reading Hamlet. Those who protest too much arouse the most suspicion.

An 11.5 per cent fall in BTR's share price to 338p - not to mention the battering the results gave the rest of the market - might look excessive, given that forecasts for both this year and next have been cut by only 5 per cent.

What caused the problem was not the numbers but the uncharacteristic sound of BTR trotting out a string of excuses for the profits shortfall. Was something more sinister going on?

BTR has more than 1,000 operating companies so it would be surprising if it was not constantly experiencing problems with some. It has never before had to resort to using such setbacks to explain a disappointing performance.

Indeed, BTR has made such a virtue of its commitment to maximising margins that the City expected it at least to match improvements reported by companies as diverse as Bowater and Cadbury this week. Many BTR businesses may be in late-cycle industries - as the company protests, in explaining static margins. But such a vague description sounded unconvincing at best.

BTR's reluctance to specify the tax and earnings benefits of its foreign income dividend - managed with ease by RTZ, Burmah Castrol and Coats Viyella - compounded disappointment. And it failed to capitalise on the one piece of good news for shareholders - the lack of a dilutive warrant issue - by failing to rule one out for the future.

That meant BTR failed to put across what should be a very positive message. If its businesses are to benefit only late in the recovery, that leaves it with far more potential for profit growth than Hanson, whose building and consumer products businesses are already improving sharply. It also has a much greater exposure to Europe, where the recovery is just starting.

The market got it wrong. These shares deserve to be at a premium, rather than a discount, to Hanson.