Bottom Line: Calor warms to idea of strong gas venture

IF BRITISH Gas thought it had heard the last of Sir James McKinnon, the indomitable former head of Ofgas and chief tormentor of the beleaguered utility these years past, it must think again.

By a nice irony Sir James has popped up as an adviser to Calor, best know for its bottled butane and propane. Yesterday Calor announced that it was aiming to take on British Gas as an independent supplier of natural gas in a joint venture with Alliance Gas.

The venture looks like a potentially important strategic move for Calor. The company could emerge as one of the more serious players in the independent gas supply game and the project, which offers a high rate of return on investment, seems likely to add materially to Calor's profits by the turn of the century, if all goes well.

Calor's traditional liquid petroleum market has been on the decline since the early 1970s, squeezed by the steady expansion of the British Gas pipeline grid to once remote areas. Although market leader with a share of over 50 per cent, Calor has also been under pressure as big oil companies have moved on to its patch.

Independent gas supply is an attractive new market for Calor. Although it is beginning with commercial customers its real muscle will lie with domestic customers when British Gas's monopoly ends in 1996. With 1,000 dealer outlets and a strong brand name, it is in a strong domestic position. Its partner, Alliance, can continue to concentrate on industrial markets.

Although initial sales of pounds 75m are indicated, Calor could conceivably double its current pounds 300m sales base, albeit at much lower margins than on bottled butane.

A pounds 10m- pounds 15m slice of extra profits is not too fanciful. This could get Calor back on the road to resumed dividend growth and warm up its moribund share price of 332p, where the yield is 4.5 per cent.