Bottom Line: Caution's reward

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The Independent Online
THE 175p offer price for Exco announced yesterday reflects understandable caution on the part of the company's advisers. But their caution could be rewarded in a premium - a rare sight in the new issue markets of late.

The price values Exco at pounds 215.5m, not much more than its original forecast of 'over pounds 200m' some months ago when the stock markets were stronger. This implies that the company did not want to overprice itself.

On a historic price-earnings multiple of 9.5 times, falling to about eight next year, it could hardly be accused of that. Coupled with a good earnings outlook, the shares look reasonably cheap.

Despite the downturn in the fixed interest market and the threat from rival screen trading on the foreign exchange market, Exco's main businesses are benefiting from increased global uncertainty about interest rates, which helps to drive volumes in the money markets.

Reflecting this buoyant environment, the company increased its profits forecast yesterday for the half-year to 30 June by half-a- million pounds to at least pounds 27.5m. Based on a notional 8.4p dividend, the historic yield is 6 per cent, covered 2.2 times.

All of which suggests that the Cayzer shipping family, which is hanging on to its 27.3 per cent holding in Exco via its Caledonia Investments vehicle, should see a trebling in value of its holding, which it picked up in 1992. It also sold Exco's former parent, British & Commonwealth, just before B&C went under at the end of the 1980s. Perhaps someone should launch a Caledonia tracking fund.

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