PacDun's rubbery figures

However, on 2 November Pacific Dunlop's head tyre kicker, Rod Chadwick, announced at the company's AGM in Melbourne that paradigms had shifted and a sell-down of Ansell would proceed. What caused this change of heart is anyone's guess but 20% of Ansell will be floated in the US some time next year. The very next day the shares jumped 14 cents, or 6.2%, to $2.39, still barely above the level at the time of our issue 38 review (Accumulate - $2.32).

Malaise forever?

Clearly, the euphoria of the announcement quickly dissipated, emphasising the fact that getting a company's share price higher is as much a matter of perception as it is of fact, and it will take more than just this one announcement. Pacific Dunlop is a mishmash of disparate businesses that causes problems in the valuation of its assets, and this means that its shares tend to trade at a discount. But the value is certainly there and as an acknowledged management tough guy like Alan Jackson at Austrim is showing, all you really need is someone who knows how to get at it.

Unfortunately, speed hasn't been one of Rod Chadwick's strong points. He's been in charge of Pacific Dunlop for three years now and only two major non-core businesses have been sold. Admittedly, he did manage to get a good price for them and the GNB Battery operation was all but sold before the acquirer rudely pulled out. Unfortunately, Chadwick's hands are tied by the huge debt ($2.1bn) the company is carrying, meaning that a fire sale divestment strategy isn't an option.

Changes to be made

So, subscribers with Pacific Dunlop shares in their portfolio will have to remain patient, especially when you consider that James Hardie tried to float its U.S. businesses earlier this year and had to call it off due to poor market conditions.

At least in terms of pricing, the sheer quality of the Ansell business means the company doesn't have too much to worry about. Ansell, a manufacturer of medical and industrial gloves and condoms, has boomed in recent years. Its success has come not so much because of insatiable demand for the product - sales growth is typically a little above the 10% range - but through being the world's largest supplier in its field, and through a tight cost control regime.

Outward focussed

Ansell also has more of an outward focus than many of the other Pacific Dunlop businesses, so much so that it's actually headquartered in New Jersey. Because of these qualities we expect that Ansell will get a good reception from the international investment community. Of course, a management shake-up in Pacific Dunlop's boardroom would be the surest remedy for the company's ailing share price, but we think that if Ansell's listing goes well, Pacific Dunlop's share price will benefit.

As things now stand the company's share price is so low that it represents an excellent 'yield play' with dividends in excess of 6% (although, alas, only 60% franked). The shares look good in earnings terms as well, at a PER of less than 12. Continue to ACCUMULATE.