Bottom Line: Cowie on to a good thing

WITH the frustration of the failed bid for Henlys fading, T Cowie, the motor dealer and leasing group, yesterday pulled off a surrogate deal.

On the face of it, pounds 29m (plus pounds 11m in debt) seems a lot to pay for Keep Trust, the motor-dealing arm of the Irish investment company Fitzwilton. Keep made just pounds 1.2m before tax last year on sales of pounds 193m.

But last year was horrid for most car dealers, and the industry is now on the road to recovery.

While competitors such as Keep have been suffering through the recession, Cowie, in contrast, prospered through its judicious mix of dealership and leasing business.

The deal, in tandem with the placing and offer to pay for it, will bring Cowie's gearing down from just above 300 to less than 250 per cent.

Cowie produced an encouraging 34 per cent rise in pre-tax profits to pounds 24.3m in 1992. It does not therefore demand too much of a leap of faith to believe it can work its magic on the Keep network.

Its 18 dealerships increase Cowie's number of outlets by 70 per cent and will give the company added muscle in the market place, as well as a more balanced geographical spread.

The placing and open offer incorporate a clawback for existing shareholders, giving one new share at 212p for about every nine held. The offer price is pitched at a 26 per cent discount to Cowie's closing price of 288p.

At this price Cowie is valued at only 13.5 times prospective earnings, based on forecasts of about pounds 32m profits this year. On that basis, the shares look cheap, let alone at the 212p offer price. Take up the offer.