ICI shares slide as profit forecasts cut

Nervousness that ICI will be hit by the strength of sterling, which yesterday reached its highest level for five years, and a steep profits downgrade by analysts at Merrill Lynch, overshadowed news that the chemicals giant stands to make almost pounds 1bn from the sale of its controlling stake in its Australian business. The group's shares fell 41p to 807.5p.

Robyn Coombs, an analyst at Merrill Lynch, downgraded her 1997 pre-tax profits forecast from pounds 530m to pounds 450m, excluding maiden profits from the Unilever speciality chemicals business bought for pounds 8bn this May, and sliced pounds 60m off the projection for 1998 to pounds 640m.

A second broker was widely rumoured to be on the verge of downgrading from pounds 544m to pounds 440m for this year because of difficult trading, the need for significant disposals to cut the pounds 5bn debt bill after the Unilever deal and the strength of sterling. ICI exports around a fifth of its sales and makes more than half its profits in US dollars.

However, several analysts said ICI was due for an upward rerating as a speciality chemicals group and rising chemicals prices and a good potential price for the ICI Australia stake meant the group was on a fast track to cut debt. Peter Blair, chemicals analyst at Salomon Brothers, thought ICI's shares could be worth around pounds 11 by2000. "The next two years' earnings are irrelevant. ICI is a new story," he said.

Though ICI said it would consider an offer from a major player for the whole of its 62.4 per cent stake in quoted group ICI Australia, analysts estimated the group could still net around pounds 850m from selling the shares to institutions. "It is encouraging that, despite the announcement, ICI Australia's share price has held up," said Charles Brown at Goldman Sachs.

Mr Blair said ICI could beat its target of pounds 3bn from divestments in three years: "Making close to pounds 1bn just a few months after Unilever is pretty quick. It shows ICI means business."

Analysts said recent chemical price rises meant the group was more likely to get a decent price for the other main disposal candidates - tioxide and polyester. Tioxide prices, which fell around 15 per cent last year, have risen by 10 per cent on the Continent and 5 per cent in the US and more price rises are expected.

"The Australia deal takes the pressure off ICI for a sale, but with prices going in the right direction, soon could be a good time to sell," said one analyst.

Dupont is a lead contender to buy tioxides, which could fetch around pounds 700m. Polyester could go for pounds 1bn.