Gamble of the week an engineer for the adventurous – MoneyWeek

Cookson,aleadingmaterialstechnologycompany,isonesuchvictim,withitssharesslumpingnearly30%sincereachingahighof889pbackinOctober。

Thispresentsabuyingopportunityforthemoreadventurousinvestor。

Letmeexplain。

Althoughconfidencehasclearlyfallen,theInternationalMonetaryFundisstillforecastingglobalGDPgrowthof4。

1%in2008(from4。

9%in2007)。

Yestheretail,bankingandpropertysectorshavecrashed,butcapitalinvestmentisexpectedtoremainrelativelybuoyant,duetostronggrowthintheoil/gas,commodityandpowergenerationsectors,andinemergingmarkets?

CooksonsuppliesallofthesesectorsandispresentlybeefingupitspresencebybuyingrivalFosecoina£497mdealthatissettobeapprovedbycompetitionregulatorsinMarch。

Theacquisitionlooksgood,asitcementsCookson’spositionastheworld’sleaderinthesupplyoffireproofliningsandotherproductstothesteelandfoundryindustries。

Annualcostsavingsof£18mayearhavebeenidentified,whilethereshouldalsobedecent,althoughasyetunquantified,cross-sellingopportunities?

Fundingfortheacquisitionhasalreadybeensecured,withtheestablishmentofanew£950mcreditfacilityontopofa£153mplacingat825ppershare–bothsignificantachievementswhenbanklendingistight。

Asaresult,assumingthatthetransactiongoesaheadasplannedon4April,thenIexpectthecombinedgrouptoachieveproformasalesandunderlyingearningspershareof£2。

1bnand62prespectivelyoncethesynergieskickin,puttingthesharesonanunderlying2009p/eratiooflessthanten。

Additionally,theboardupdatedtheCityontradinginDecember,andcommentedthat“ourend-marketsareshowinggoodgrowthandtheoutlookforsteelproductionremainsrobust。

”Asalways,though,thereareafewgreyareastoconsider。

TheintegrationofFosecowillincreaserisk,albeitthebusinessesarecomplementary。

Thenthereistheproformanetdebtofaround£700m,alongwitha£156mpensiondeficit。

Finally,aswithmostindustrialcompaniesoperatingworldwide,Cooksonisdependentonthehealthoftheeconomy,whilstalsobeingexposedtoforeigncurrencyfluctuationsandrisinginputcosts?

Nonetheless,givenCookson’sinternationalfootprintinrapidly-expandingemergingregions,Ithinkthestockisalong-termbuy。

Full-yearresultsareouton11March?

Recommendation:SPECULATIVEBUYat631。

5p(mktcap£1。

3bn)