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BOC: H1 2006 results
BOC Group, a supplier of industrial gases reported a 38% decrease in group operating profits for the half year to March 2006 following the disposal of the company’s majority holding in Afrox Hospitals.
BOC was obliged to divest 80% of its holding in Afrox (which supplies medical gases) under a black empowerment scheme in March 2005. The company retains a 20% holding in Afrox.
The company, which is expected to be taken over in a couple of months by the German engineering group Linde AG, once regulatory hurdles are cleared reported a 2% growth in operating profits in its largest business, Industrial and Special Products which contributes just under half the company’s profits. The other big business, Process Gas Solutions (38% of operating profits) fared better, reporting an 11% growth in profits.
High energy costs were the prime cause of the slower growth. Demand for the company’s products are tied to general levels of industrial activity and with most major economies at the top of the cycle, the medium term outlook for demand does not look particularly rosy. In the meantime high oil prices look set to stay for sometime, bringing margins under constant pressure.
Current earnings are however somewhat irrelevant, now that the firm is likely to be taken over. The Boards of Linde and BOC reached an agreement on the 6th of March 2006 recommending that shareholders accept Lind’s cash offer of 1600p for the entire issued and to be issued share capital of BOC. Provided regulatory approval is received (which seems likely) the takeover is expected to be completed by June 2006.
The share is currently trading at 1565p, which puts it on a prospective PE (2007 earnings) of 20x, which is high. The yield is 2.8%.
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