Bottom Line: Salvesen shows it has ambition

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The Independent Online
CHRISTIAN Salvesen's acquisition of Swift Distribution yesterday is certainly good news for Swift's management - and the venture capitalists who backed its buyout from the distressed LEP Group 18 months ago.

They have recouped pounds 80m for a business they paid just pounds 26m for. But the losers were LEP shareholders, not Salvesen, because it seems to have paid a sensible price as a trade buyer.

Chris Masters, Salvesen's chief executive, said the purchase would not dilute earnings. But there is unlikely to be an immediate big uplift either - it is the longer-term prospects that are more interesting. Swift will expand its logistics arm and take it properly into industrial distribution. That offers more potential for growth than Salvesen's existing retail distribution business.

Swift's expertise can be rolled out into Europe through Salvesen's existing Continental network. The pounds 80m cash price tag will push gearing up to a not uncomfortable 50 per cent, with interest cover at 13 times.

The Scottish conglomerate has looked a little dowdy lately when set next to the similarly structured Hays Group - and its market rating has lagged as a result. Hays has been helped along by a couple of fancy deals, but yesterday's acquisition shows that Salvesen has ambitious, albeit sensible, plans too. Kleinwort Benson was forecasting pre-tax profits of pounds 83m in the year to next March, giving earnings per share of 21p. That puts Salvesen on a prospective p/e of a little under 17.5 at yesterday's closing price of 366p. The shares look a solid buy for the medium to long term.

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