Bottom Line: Gerry is the pacemaker at Granada

Click to follow
The Independent Online
GERRY ROBINSON is known as Gerry rather than Mr Robinson. People who work for him like him. He gives them autonomy and makes them feel loved. He has a strong following in the leisure industry and is respected by his rivals. He has loyal supporters in the City and the share price of Granada Group has more than doubled since he took charge 18 months ago.

After presiding over the turnaround of Granada (much of the hard work was done by his predecessor, Derek Lewis), he is now on the acquisition trail. After spending pounds 360m on the contract caterer Sutcliffe Speakman, Granada is poised to expand its TV interests and put in a bid for the national lottery.

These moves are likely to cost it at least pounds 100m and this does not appear to be the limit of Granada's ambition.

Cynics who have lived through the 1980s may feel a sense of deja vu. Does the City love Gerry Robinson too much? Will it merely give him enough rope to hang himself, and then move on to the next figure of adoration, being wise after the event?

This depends greatly on his self-control and ability to keep his feet on the ground while his supporters fete him. So far he has hardly put a foot wrong.

Granada's half-year pre-tax profits of pounds 68.1m, up either 72 or 28 per cent depending on which accounting convention you use, earnings of 9.8p and dividend of 3.025p, were comfortably ahead of City expectations. Much of the recovery is due to cost-cutting and falling interest rates.

Computer maintenance returned profits of pounds 4m, a modest increase on a year ago and a poor return on pounds 76m of sales. Granada hopes, one day, to have 10 per cent margins in this business, but it has been hoping that for a while.

TV showed a pounds 3m profit rise, pounds 2m of this from reduced payments to the Government. The full impact of the new levy system and cost-cutting should push up profitability, but what Granada TV really needs is a recovery in advertising revenue.

TV rental and leisure are both mature businesses. Granada's mistake in the 1980s was to believe it could turn them around by heavy investment. Mr Robinson recognises them as the cash cows they are and is more interested in developing other businesses.

Which brings us to contract catering. Granada reckons it can improve Sutcliffe's margins from 4 to 10 per cent. If it does, it will make more than pounds 50m a year from the business and Sutcliffe will prove to be an exceptional acquisition.

Nigel Reed at Paribas Capital Markets reckons Granada can make pounds 168m this year and pounds 210m in 1993/4 without any upturn in the economy. If this is correct, the shares at 415p trade at less than 15 times next year's earnings. If Mr Robinson is as good as he seems, this is cheap.

Comments