Bottom Line: RJB must pit wits against generators

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The Independent Online
IT IS HARD to fault RJB Mining's performance since flotation, but that says little about how it would do if its bid for British Coal succeeds.

The 1.3 million tonnes of coal it produced in the first half is a substantial increase on the same period previously, thanks partly to the addition of the three lease and licence pits taken on from British Coal. But it is still insignificant against the 40 million tonnes it could produce if it gains all five British Coal regions.

Its performance with the pits taken on so far suggests it can claim some skill in mining management. The costs of re-starting mining at the three leased from British Coal appear lower than expected, albeit at the cost of a hefty pounds 25m of capital spending. But one of these has yet to start production and the others have been re-opened for less than six months, so it will be at least 1995 before shareholders can be certain RJB will make a success of underground mining.

Winning in the British Coal auctions would also sharply increase RJB's reliance on the power station market and its two dominant customers - National Power and PowerGen - which have proved that they can drive a hard bargain.

The transformation would not be only operational. The group has said it wants all five pits - a quantum leap in size, given its pounds 165m market capitalisation, even if the estimates of pounds 500m for all five regions prove over-optimistic. Indeed, it could need a one-for-one rights issue to finance one, if it decides on equity finance alone.

A rise in gearing from 35 to 65 per cent will limit the scope to borrow to finance a takeover, although once the current investment programme is complete, cash flow should be strong enough to repay much of its existing debt by 1996. Banks may, however, look askance at the fact that the power contracts on the British Coal mines being sold expire in 1998 - and there is no guarantee of renewal.

The group's ambitions have been clear for so long that an autumn cash call should be no surprise to investors. New shareholders, however, might prefer to await the outcome of the auction before deciding whether to join in.

Maid memory lingers

THE fortunes of Maid, one of this year's new issue crop, could hardly be more different from those of RJB. At 75p, its shares have recovered from the post-flotation low of 43p but are still at a hefty discount to the 110p issue price.

Personality clashes between Dan Wagner, chief executive, and some City fund managers ahead of Maid's placing in March did not help, but it is in a difficult business, anyway.

Profits depend on repackaging information from original, indeed rival, on-line sources. It is in direct competition for customers with some of them. Contracts with suppliers are crucial, as the company has recognised with the appointment of a new senior executive to handle relationships with information publishers.

Maid also needs to stay on the frontline of technology with its own software. One of its reasons for going public was to raise funds for the development of a Windows version of its services.

Despite these permanent challenges, there is a case to be made for the shares at the current price. Profits before tax at pounds 439,832 in the six months to June were more than double first-half profits last year. Earnings per share in 1994 are likely to be about 1p, but profits could rise sharply in the next year or two, making forward price-earnings multiples far more attractive. If profits before tax rose from an expected pounds 1.2m to pounds 5m next year, the multiple would fall from 75 to about 18 - in line with other media stocks.

A figure of pounds 5m is not outrageously optimistic, relying on modest growth in the subscriber base and an unchanged renewals rate. New products, such as the Windows version, could take profits much higher.

Maid also has pounds 10.7m cash to spend on further development and on improving its marketing. The next few months should bring announcements on distribution agreements with bigger partners in the US.

The trouble for Maid is that fund managers are even better than elephants at never forgetting. The last-minute scaling back of its flotation in March has left institutional investors fearful of another crisis.

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