Bottom Line: No cause for alarm

A COMPANY whose share price has more than doubled in a year which, it boasts, saw the largest number of acquisitions in group history inevitably sets alarm bells ringing. In the case of Danka Business Systems it is a probably a false alarm.

The acquisitions, Danka's first overseas, took pre-tax profits up 83 per cent to pounds 32m in the year to 31 March. Sales rose 86 per cent to pounds 347m, with the 29 acquisitions accounting for just under a third of the total.

Listed in London for tax reasons, the American photocopier group has a good takeover record at home. The European copier market, estimated at dollars 20bn, is only two-thirds the size of the US market but is growing faster. It is just as fragmented as America's.

Danka's pounds 9m purchases of Saint, based in Hull, and three smaller British companies have given it pounds 35m in UK sales, 3 per cent of the market. There is clearly scope to build on the economies of scale in administration, sales and servicing.

Rapid technical change in photocopiers and fax machines is helping the market grow. With customers of the US newcomer billed monthly on their renewable one-year contracts, it is not difficult to persuade them to upgrade - especially with the American emphasis on quality service.

Danka rewarded shareholders with an 11 per cent rise in 1993 earnings per share to 11.8p and a 33 per cent increase in the dividend. The share price rose 5p to 335p.

The earnings figure for the current year will be about 14p. That puts Danka on a fairly demanding prospective price-earnings ratio of 23, but the growth prospects and its US acquisition experience justify it.