Charter results dispel doubts

The pounds 380m acquisition of Howden, the Glasgow-based fan builder, has done little to lift the cloud under which shares in Charter have been resting since the middle of last year. But if the market had reservations about that acquisition, they should have been dispelled somewhat by yesterday's interim figures from the welding rods to railway track group.

Virtually flat profits of pounds 51.5m at the pre-tax level for the six months to June hid a 12 per cent advance when the effects of currencies are stripped out. Charter's confidence in the outlook is reflected in a 5.6 per cent lift in the half-time dividend to 9.5p.

Initial views about Howden seem to have been borne out, now that Charter management, led by chairman and chief executive Jeffrey Herbert, have had over four months to take a proper look at it. Negotiations are under way for the disposal of under-performers, including the loss-making tunnel drilling and boring business and European packaging and handling businesses. That will give an immediate boost towards reaching Charter's target of raising Howden's margins from around 5 to above 10 per cent over the next two to three years, in line with the competition.

Beyond that, Mr Herbert and his team have already got down to work sorting out Howden's rather unco-ordinated manufacturing base around the world. Charter reckons the resulting factory closures and redundancies will cost a relatively modest pounds 25m in the full-year results. So the prospects look good for a repeat of Charter's success with Esab, the Swedish welding rods group, where margins have trebled since it was acquired in 1994.

There should be more to go for at Esab. Profits there advanced from pounds 40.3m to pounds 42m, despite a drop in European sales. That market should bounce back soon, while developing markets in Asia and Latin America should provide long-term growth.

Full-year profits of pounds 103m would put the shares, up 22.5p at 803.5p, on a forward multiple of 12. Newly moved into the engineering sector from conglomerates, Charter's 30 per cent discount to the market is undeserved. Buy.