The Investment Column: BTP

BTP, which makes ingredients for Viagra, is transforming itself from an unfocused chemicals group to a lean specialty chemicals machine. In the past two years it has forged 20 separate deals, buying and selling pounds 450m worth of assets. But has it done enough to secure its independence in the consolidating chemicals sector?

It is focused on two divisions: performance chemicals, such as treatments for leather, and fine chemicals, like fragrances. Yesterday's full-year results beat expectations, sending the shares up 6 per cent to 424.5p.

The refocusing boosted margins, while sales fell from pounds 438.8m to pounds 374.2m. Leather went through its worst-ever year and demand for plastic-related chemicals collapsed. US firms also ran down old stocks of agrochemicals, triggering a sharp reduction in profits.

Pharmaceutical products are now 40 per cent of sales. That's welcome - healthcare is less prone to damaging cycles than leather or agriculture. BTP's chief executive, Steve Hannam, has secured some long-term supply deals with DuPont, Roche and another unnamed pharmaceutical giant, to make the future yet more secure.

But to survive cyclical downturns, size matters. Valued at just pounds 743m, BTP is a bid target.

With forecast earnings per share of 23p, BTP's forward p/e is 18, an ungenerous 30 per cent discount to the market. The increasing likelihood of a bid on top of the restructuring underlines its rating as a buy.