ICI's confidence may be misplaced

ICI is confident that it is not facing a massive downturn in the chemicals cycle, which it has done its utmost to escape since the last peak in the 1980s. Certainly the stock market appears to have confidence, judging by the shares' 14 per cent outperformance against the rest of the market this year.

But yesterday's figures, showing pre-tax profits down 8.6 per cent to pounds 223m in the first three months of the year, do little to support the ICI case. Shorn of Zeneca, its contra-cyclical pharmaceuticals operation, the chemicals rump has been trying to shed the most exposed commodity businesses. But it is plainly still extremely vulnerable.

Industrial chemicals, used in everything from plastic drinks bottles to paint, remain the core of the business, but a combination of unsustainably high prices last year and destocking by customers have slashed first-quarter profits from the division by pounds 56m to pounds 87m. Volumes slid 9 per cent in the period, but plant shutdowns in the industry should help tighten the market and ICI is seeing prices coming off the bottom.

The group is also unworried by a flat pounds 14m contribution from paints, despite a pounds 100m rise in turnover to pounds 524m. An unspecified contribution from two recent US acquisitions, Grow and Fuller O'Brien, was wiped out by a downturn in Australia and Continental Europe.

Meanwhile, in explosives ICI appears to have walked into a legal minefield. No sooner had it started to extricate itself from action over alleged price-fixing at its Thermex subsidiary, than it was hit by a class action over its explosives being used in the Oklahoma bombing.

ICI itself is warning that profits in the current quarter will be below last year's level, but, further out, the plan to reap pounds 400m savings by 1997 is said to be still on track. Yesterday's 28p fall in the shares to 926p owed as much to disappointment over the absence of any share buy- back than the outlook, but investors would do well to exercise caution. Assuming profits of pounds 950m this year, the forward multiple of 12 suggest the shares should not be chased.