The Investment Column: ICI's new portfolio faces the same old problems

JUST OVER a year ago, it seemed nothing would stop the inexorable rise of ICI's shares. This symbol of great British industry was well up with the national spirit, transforming itself into what it called "New ICI".

The company put its bulk chemicals businesses up for sale, aiming to focus on "speciality" chemicals such as ice- cream flavours and shampoo foaming agents. US investors were convinced by the arguments - margins are higher in specialties and they're less cyclical - and sent the shares up from around 800p to 1244p.

But just before ICI had sold its bulk businesses, and just after it had acquired the specialty businesses National Starch and Quest, the Asia crisis hit. The shares crashed to 446p. ICI was left debt-ridden, with businesses for sale at their cyclical troughs. The shares have since recovered to 732.5p. Will they go further?

In the half year, ICI's speciality sales grew just 4 per cent. That shouldn't be a worry because these are supposedly high-margin businesses with scope for growth. But National Starch (pounds 1.8bn of sales) saw flat profits, and Quest (pounds 650m of sales) saw profits rise only 6 per cent. It seems specialities are vulnerable to economic conditions too. The decline shows there's nothing genuinely special or unreplicable about ICI's new portfolio.

The shares gained 52.5p yesterday as ICI posted better-than-expected numbers for recently sold businesses and the remaining disposal portfolio. That suggests there's some justification in ICI's confidence that it will net pounds 1bn from the disposals yet to be completed to pay off its pounds 3.2bn debt. Paints also put in a good performance.

But that's hardly a reason to buy. Merrill Lynch expects pre-tax profits of pounds 335m and earnings of 26p per share this year. Expectations for the group are based on the completion of the disposal programme. If that's in the price, investors are taking a big gamble on ICI's competitive strength in slow-recovering markets. They should exploit the recovery and sell.