Caverdale completes transformation

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THE EIGHT-YEAR transformation of Caverdale from a loss-making motor dealer into a specialist retailer and distributor of clothing and accessories to fast-growing niche markets, including motor-cycling, sailing, cycling and fitness centres, is complete.

This follows the disposal of both the former Godfrey Davis motor dealerships in 1997 and the industrial products division last July, and the acquisition of two leisure marine companies in January this year.

It has been a tumultuous ride. Last year turnover plunged from pounds 251m to pounds 71m and operating profits from pounds 7.1m to pounds 4.7m. However, the ongoing and acquired businesses grew their sales by 60 per cent and profits quadrupled to pounds 3.6m. After paying interest costs, profit before tax rose by 40 per cent to pounds 6.04m, including disposal profits of pounds 2.3m.

Including special dividends, shareholders have received back more than they subscribed in rights issues and capital calls, Arild Nerdrum, the executive chairman, said yesterday. The group has four significant institutional shareholders with 14 per cent of the shares, and the directors own a further 26 per cent. Capital expenditure is likely to fall from last year's pounds 10m to less than pounds 2m if there are no further acquisitions.

The three ongoing divisions now contribute shares of roughly 50:35:15 to profits. Over time the proportions are expected to even out, but all operate in relatively fragmented markets with scope to expand by acquisitions and organic growth.

All three divisions are targeted at what Mr Nerdrum calls "passion" products - low interest rates are encouraging consumers to spend.

The latest figures are in line with market forecasts. Ed Wright at broker Dresdner Kleinwort Benson is not changing his forecast of pounds 5.2m and earnings of 11.9p in the current year, rising to pounds 7.4m and 16.6p in 2000.

But the shares have underperformed the market in the past 12 months and even after a jump of 11.5p to 124p yesterday still look attractive, at less than eight times forward earnings.