General Cable revival brings boost to Wassall

INVESTMENT COLUMN

Wassall might at last be emerging from the shadow of its unfashionable conglomerate tag. The shares have barely outperformed the rest of the market over the past two years, but yesterday's 10p rise to 287p suggests that sentiment is now on the mend.

That optimism reflected the announcement of underlying profits before exceptionals 42 per cent ahead at pounds 50.7m for the year to December. More revealing, given the kicker provided by a first full-year contribution from General Cable, which was acquired for pounds 177m in the middle of 1994, was the 30 per cent uplift in earnings per share to 17.4p. That brings compound growth in earnings over the past five years to an impressive 21 per cent.

General Cable, a supplier of copper wire, now looks to have been a buy worthy of Hanson at its best. Year-on-year profits have doubled to $49.9m (pounds 32.6), while margins have climbed from 2.8 per cent before the acquisition to 4.7 per cent last year. In the space of 18 months, Wassall has achieved what it set out to do in three years.

Fears that General Cable may be a diminishing asset as fibre optic takes over from copper wire in telecoms and data applications may be overdone.

For a start, the US group's renaissance under Wassall's ownership has already allowed it to profit from the shake-out in the industry, enabling it to double its market share in telecoms over the past 18 months to 30 per cent.

There should also be rich pickings in the data communications business, which currently provides only 16 per cent of General Cable's business but is growing at over 20 per cent a year.

Electrical wire in buildings still amounts for 40 per cent of the business, and is likely to remain sluggish this year, but sales growth elsewhere and further rationalisation should enable Wassall to lift margins at General Cable another point this year. The 7 per cent achieved by the industry's best must be the medium-term aim.

Meanwhile, worries that Wassall's original bottle tops and sealants businesses were running out of steam also look wide of the mark. It was not possible to fully recover soaring raw material costs, a problem compounded by depressed DIY demand, so margins suffered in 1995. But, currently, steadier raw materials prices augur well for this year.

Wassall still has to prove that it can keep all its balls in the air at once, but a forward price earnings ratio of 14 - assuming clean profits of pounds 62.5m in 1996 - is a stingy rating given the potential.