Bottom Line: Market puts too much faith in BET's prospects

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The Independent Online
SUCH is the market's faith in recovery that even unremitting gloom on prospects from BET failed to dent enthusiasm for its shares. Having pushed them up by a fifth relative to the market in the past two months, despite the realisation that it could not hope to hold its final dividend, it yesterday sent them up a further 3p to 111p despite more write-offs and restructuring charges which pushed it into a worse-than-expected pounds 9.8m loss.

The results announcement was certainly a litany of woe. Trading profits fell in each of its continuing divisions; price pressure is continuing at most of them; and John Clark, chief executive, says he has yet to see any signs of economic recovery.

That makes the second stage of his restructuring - trying to wring extra profits from the ragbag of service businesses he inherited two years ago - all the more vital. It is a daunting task.

Despite more than pounds 600m of provisions for restructuring and disposals in the past two years, the operating margin of 3.9 per cent is just over a third of what it was when Mr Clark took over.

The lack of operating progress so far is partly because he has had to focus on cutting debt (impressively achieved), selling the worst bits of the 1980s expansion and introducing a sensible management system.

Servicing lavatories, cleaning offices and hiring out scaffolding are never going to attract premium prices - the secret is to do them for as many customers and with as few people as possible. Mr Clark is only just starting to tackle that problem.

He is rather vague about how much the business has saved so far (although he was able to be remarkably precise about the pounds 20m benefit that the pounds 34m reorganisation provided for yesterday will bring). But the 42,000 drop in staff to 103,000 - two-thirds of that through disposals - since Mr Clark took over looks less impressive when set against the record of other companies during the recession.

The lack of exceptionals and restructuring charges this year means it should be able to match the pounds 95m or so made from trading last year, putting the shares on 16 times earnings - about 10 per cent ahead of the market - while the halving of its dividend to 3.25p, via a 1.25p final, gives a 3.6 per cent yield. That overstates its attractions, recovery or no.

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