The Investment Column: Burmah Castrol looks to long term
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Your support makes all the difference.Burmah Castrol's decision announced yesterday to dispose of its two speciality adhesive companies, Industrial Adhesives in the UK and Columbia Cement in the US, does not by itself amount to much. Between them they had a turnover of pounds 40m last year out of a group total of pounds 3bn. The two companies are distinct, and are being sold separately. Columbia makes adhesives for the DIY market in the US and Industrial Adhesives, which employs about 130 people in Chesham, as its name suggests supplies industrial customers in the UK and Europe.
The announcement is intended to keep employees in the picture. Discussions are already taking place for one disposal, and expressions of interest have been received for the other. Both should be gone by the end of the year
The businesses are profitable, and the company will probably be looking for prices roughly in line with turnover, with negligible impact on earnings per share. The pounds 40m-odd proceeds will help finance Burmah's plans to spend around pounds 50m on new acquisitions in core businesses within the chemicals division.
The two companies being sold were acquired in the Eighties as the core of a new division, only for other groups to get the same idea, which priced acquisitions out of Burmah's range. Taking over Foseco in 1990 gave Burmah a different focus and a much bigger challenge. But the thought that Burmah might still nurse ambitions to build the division up to critical mass has been troubling some analysts in the City, and yesterday's announcement will put an end to any such fears and could lift the glass ceiling on the shares.
They nudged up 1p to 1021.5p yesterday which values them at under 15 times forecast earnings, assuming profits of pounds 147m for the current year. But while sterling stays strong they are still only a hold for investors with a long-term view.
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