Bottom Line: Cowie motors ahead in a buoyant market

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SHARES in T Cowie bucked the market following the announcement of results at the top end of analysts' expectations. The motor division in particular powered ahead, thanks to the acquisition of the Keep Trust dealership and the strength of UK car sales.

The Keep Trust acquisition was important for the critical mass it brings to Cowie, making it the country's fourth-largest dealership. And the company's upbeat statement of prospects for 1994 looks to be justified by figures for the car market so far this year. Given the fixed costs of running a dealership, operational gearing is high.

The question is how much of the improvement is already in the share price. Cowie has outperformed the market by nearly 40 per cent during the past year. By the end of 1994 car sales in the UK will have been rising for almost three years, and as the cycle heads towards its peak Cowie's shares can be expected to move to a discount to the market.

It hopes to make this less pronounced than during the last recession by improving earnings quality - for example by moving into fleet management, where it has just won its first contract.

It also promises improvements in efficiency and quality of service. It is five times more expensive to get a new customer into a showroom than to sell to an existing customer, and Cowie is introducing measures to keep customers loyal.

If the management measures work, the prospective p/e ratio of 16 looks modest. And the buoyant conditions in the car market should mean continued outperformance this year, even if the longer-term optimism proves excessive.