The Investment Column: Lonrho continues to disappoint

Over the last few years Lonrho has made an art out of disappointing shareholders and yesterday was no exception. Ignoring exceptionals, pre- tax profits for the year to September slumped more than 40 per cent to pounds 101m and the shares fell another 4p to 83p. This time it was falling gold and coal prices, the strong pound and the economic hiatus caused by the election in Kenya which conspired to chop earnings.

However, Lonrho's continuing attempts to transform itself from a sprawling conglomerate to a pure mining group overshadowed the dire results. On- off talks with JCI, the South African mining group, about buying its coal interests are on again. But a question remains about price and what will happen with the 26 per cent stake in Lonrho that JCI wants to acquire from Anglo American, the South African mining giant.

The delayed pounds 300m sale of the Princess hotel chain is edging towards a conclusion but there are still no firm details of the proposed demerger of the African mining interests.

Given so many imponderables, valuing Lonrho is no easy task. Probably the best way is to look at net assets. But here, too, analysts' views differ wildly. The consensus is somewhere around 145p a share. Most mining groups trade at a 15-20 per cent discount to net assets. Applying the same sort of discount to Lonrho, that would give a fair value of 116p, well above the current share price. However, it was not too long ago that analysts were predicting a fair value of more than 250p, which shows just how much Lonrho's business has deteriorated.

Of course it would not be fair to lay all the blame on the new management team lead by Nick Morrell, the chief executive. After all, the slump in the world-wide commodity prices is hardly the company's fault and has hammered miners' share prices around the world.

That said, the management's performance so far can hardly have inspired confidence in shareholders and the jury is out on whether they can dig Lonrho out of trouble. The demerger of the African trading industries could finally unlock what value is still buried in the group but until the demerger and the sale of the Princess chain are safely completed then investors would be wise to avoid Lonrho. For long-suffering shareholders there is little choice but to hold on and hope for the best.