Williams plans to raise pounds 400m from disposals

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The Independent Online
WILLIAMS, the former conglomerate that is reinventing itself as a more focused security and fire services group, is planning to raise a further pounds 400m from disposals as it completes its transformation.

It will float its Robbialac paint business in Portugal later this year with an expected valuation of around pounds 100m. It will also sell its remaining US paints businesses, which have a value of pounds 300m. ICI is tipped as a possible buyer.

The proceeds are expected to be used to fund further acquisitions, principally in fire and security services. The move is part of a plan by Williams' chief executive, Roger Carr, to derive 60 per cent of group sales from services as opposed to the current 38 per cent.

Services, which includes the provision of security guards and closed- service television equipment, is growing sales at more than 10 per cent with profit up by 16 per cent in the last year. The company hopes the shift will trigger a gradual re-rating of the stock.

The comments came as Williams unveiled underlying profits of pounds 302m compared with pounds 285m in the previous year. However, the group's shares fell 16.75p to 348.5p with some analysts pointing to a cash outflow.

Mr Carr feels Williams is well on the way to sloughing off the old-conglomerate tag. Unfortunately the City does not appear to agree. The shares have underperformed the market by 48 per cent in the last five years, with earnings diluted by a stream of high profile disposals such as Polyfilla and Cuprinol. The stock also looks likely to be relegated from the FTSE 100 index next week, prompting selling by tracker funds.

The company is clearly disappointed by its rating compared with other support services groups like Rentokil and Hays. The difference is that those companies have much better records, built up over several years of outperformance.

Williams ought to be a better performing business than it is. It has terrific brands such as Chubb, for which it paid pounds 1.7bn in 1997. The group has fulfilled its target of improving profits by pounds 40m since the deal.

The company is confident it can maintain organic growth rates of 10 per cent, particularly in its services business. Mr Carr has also signalled a slight improvement in the economic outlook in its major markets. Some analysts attribute the sluggish growth to the group's history of buying and selling businesses in its conglomerate days rather than investing in the building of brands.

The bulls of Williams believe management's strategy is right and that a re-rating may be not far away. However, even they suggest a further year or two of acquisitions may be needed before the services businesses reach critical mass.

On Panmure Gordon's upgraded current-year profit forecast of pounds 323m, the shares trade on a forward multiple of 13. That is not expensive, though short-term factors such as the relegation from the FTSE 100 will weigh against the stock. But longer-term the outlook is reasonably promising.