Luck and magic at Wassall

THE INVESTMENT COLUMN

The performance of Wassall, the mini-conglomerate led by Chris Miller, formerly of Hanson, has been transformed by last year's pounds 179m acquisition of General Cable. In true conglomerate style, the UK group has rapidly worked its magic on margins at General, one of America's three biggest producers of copper cable for wiring up homes and offices. A whirlwind of rationalisation, including a 10 per cent cut in both the workforce and the manufacturing space, has helped push margins from 2.8 per cent just before acquisition to 3.5 per cent in the half-year to June.

The inclusion of the business for the full six months, against just three weeks last time, has propelled group pre-tax profits to pounds 24.4m in the per- iod, against a loss of pounds 8.1m last time. The picture is distorted by the pounds 19.9m of provisions taken against the US business in 1994 and pounds 4m of windfall stock profits, this time as a result of a 38 per cent rise in the price of copper, a key ingredient of General's products.

But stripping out the one-offs, underlying operating profits 75 per cent ahead translated into a respectable 30 per cent growth in earnings per share to 6.1p.

The outlook is good for General, despite the fact that about half its near-$1bn of sales go into the cyclical US building industry. The consumption of electric gadgetry grows by the day in American homes and fibre optics are a long way from providing any serious competition.

But Wassall has had its fair share of luck. The recapture earlier in the year of a $500m contract to supply US West, one of the "Baby Bell" telephone companies, was a stroke of good fortune. Its inclusion is already boosting margins and puts 8 per cent volume growth within sight for this year.

Meanwhile, the performance of "old" Wassall is looking a bit patchy. DAP, the American DIY products business, has been squeezed between soaring raw materials costs and a sluggish market, cutting profits by pounds 1.5m.

Higher input costs have also hit margins at the European end of the closures operation.

Panmure Gordon's forecast that profits will top pounds 51m this year puts the shares, up 14p at 267p, on a forward multiple of 15. Fair value until conglomerates return to favour with the stock market.