Williams focuses on the future

The Investment Column

Williams Holdings saw the writing on the wall for conglomerates a long while before its peers and worked hard at creating focus. For a while it looked simply cosmetic - clumping disparate businesses into three merely nominal divisions - but yesterday's interim figures, showing profits up 11 per cent to a record pounds 114.9m despite quite difficult markets, showed there was real substance behind the rhetoric.

Not that the steady progression in profits, earnings and dividends over the past five years has done much for the share price, which has traded resolutely in the 300p-350p price range throughout most of that period. Williams has been one of those stock market puzzles, a well-run business that nobody seems terribly interested in.

One of the reasons for the dull performance is the fact that, despite recent acquisitions which have helped the balance somewhat, Williams is still heavily skewed towards the construction and building markets. Turnover from continuing operations of pounds 818m (pounds 709m) was more than half accounted for by the Rawlplug to Swish and Valor building arm. Profits in North America rose slightly but the good work was wiped out by a similar decline in Europe and prospects remain tough on the Continent.

That held back profits from the other two core operations, fire protection and security, which both reported impressive advances. In fire, there was strong growth from aerospace customers such as Boeing and portable extinguishers sold well in the US, where consumer spending is on the up. In security, which includes the strong Yale brand, profits were up 8 per cent on flat sales and the long-term outlook in markets such as the Far East remains attractive.

Williams is not going to come good, from an investor's point of view, overnight. It is in the middle of a far-reaching refocusing that will take time to bear fruit, but Sir Nigel Rudd and his able chief executive, Roger Carr, are at least heading in the right direction and generating good margins and cash flow while they travel there.

They will not admit as much, but it seems clear that in a few years, Williams will have extricated itself from building products, perhaps raising up to pounds 1bn in the process, and focused even more on fire and security, two markets with the potential for strong growth and, importantly, a global sales and marketing effort.

Profits of pounds 245m this year and pounds 265m next time would put the shares, down 1p to 356p, on a prospective price/earnings ratio of 15 falling to 14. That doesn't seem too demanding but, against earnings growth over the next couple of years of less than 10 per cent a year, the rating is unlikely to improve much. Fairly priced.