Bottom Line: Piling it up

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The Independent Online
THE pricing of Sir Philip Harris's vehicle for returning to the stock market, after a five-year absence, displays worrying signs of late 1980s hubris. Two weeks ago County NatWest, Carpetright's merchant bankers, were nodding towards a valuation for the company of between pounds 80m and pounds 100m. At 148p a share, the final tag is a greedier pounds 113m.

That is 21 times last year's profits and represents nearly 17 times what analysts expect the carpet retailer to make in the year to next May. Arguably a premium to the market is justified by a 178 per cent increase in pre-tax profits last year, but a notional 3.4 per cent yield is hardly generous, especially when it is only covered 1.75 times by earnings.

Ambitious the flotation may be, but the attractions of the Harris name, underlined by 14,000 applications for prospectuses, is likely to prevent too many red faces at County. Sir Philip's track record and timing is impressive.

He sold Harris Queensway to Sir James Gulliver for a personal haul of pounds 70m two years before the company went bust and he has built up Carpetright in the teeth of an appalling slump in the house market. He is holding on to most of his stake in the new venture.

From a standing start Carpetright has 116 stores and plans to double in three years. Cash generation is strong, there are no borrowings, and the house market seems to have bottomed.

The original backers have made a handsome return but MFI, which has turned its initial pounds 1m investment into pounds 21m in five years, has decided to cash in all its chips. Leave the offer alone.