Bottom Line: Succumbing to Magnet's attractions

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The Independent Online
THE BANKS that have sunk more than pounds 550m into Magnet may not agree, but Berisford's acquisition of the kitchen and joinery business looks almost too good to be true. Net of Magnet's pounds 30m cash, Berisford is, in effect, paying just pounds 26m for a business with net assets of pounds 108m and annual sales of about pounds 180m.

The catch - as the banks are all too well aware - is that Magnet has lost almost pounds 100m, before interest charges, in the past four years. Although it was back in the black in the six months to September, returning it to respectable profits will be a long, hard slog.

Alan Bowkett, Berisford's chief executive, is confident he can expand the business by winning back the jobbing builder, ignored by Magnet in favour of the retail customer in the 1980s, expanding the product range and chasing new customers.

But wresting this business back from those - including Mr Bowkett's former employer, Boulton & Paul - who have moved to fill the gap vacated by Magnet will be easier said than done.

Mr Bowkett sees the deal as the first step in converting Berisford into a Tomkins-style conglomerate - and judging by his guarded comments on provisions and write-downs, he intends to emulate its accounting tricks. That means the balance sheet is likely to end up with considerably less than the pounds 220m net assets shown in the pro forma accounts.

The deal does mean Berisford shareholders at last know exactly what they are investing in. They have the added bonus of the promise of a small dividend this year.

Based on the 120p rights price, the group would have to make pounds 12m profit before tax to put the shares on a prospective p/e of 15, about the market level. That implies a net margin of 6.5-7 per cent or a large increase in sales. Both are achievable, but shareholders should not hold their breath.