Class acts on the road to profit

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The Independent Online
Among the new companies flocking to join, or having recently joined, the stock market are some with strategies for making money out of vehicles. A solid business poised for years of steady growth is Universal Salvage at 278p which disposes of cars after accidents. More speculative is Skynet Corporation, priced at 280p on the Ofex market and due to join AIM shortly, which has great hopes for its revolutionary car security product.

Universal Salvage is yet another company riding the boom in big companies handing non-core activities to specialists that can do the job better. It disposes of write-offs on behalf of insurance companies and organisations with self-insured fleets. Between 1992 and 1996 the number of vehicles handled has grown from 36,535 to 69,700, sales have doubled and pretax profits and earnings per share have more than trebled.

The company has a significant opportunity to increase market share. Some 500,000 cars are written off in the UK each year, which means Universal Salvage has 14 per cent of the market. It is the biggest third party contractor, with a network of eight depots (including six huge auction sites), and has pioneered the widely-adopted classification system for crashed vehicles. A major concern for customers is that only vehicles repaired to a high safety standard should come back onto the road. By using Universal Salvage they can off load this responsibility.

A theoretical worry is that the company has a narrow customer base. Five clients, including Direct Line and Eagle Star, accounted for 55 per cent of all vehicles handled. Conversely, the company can quickly boost its share by adding new clients. It is presently expanding capacity in the south of England, with new contracts under negotiation. Analysts are looking for current year profits to reach pounds 5.4m against last year's pounds 4.6m before flotation costs. The prospective p/e looks high at 21 but reflects the quality of earnings and the excellent medium term prospects.

Skynet is more speculative with no sales or profits and a product not yet launched - though that should be rectified within weeks, if not days. The man behind it is 52-year-old Bob Yorke, who founded Crusader Alarms, subsequently sold to Rentokil, and co-founded Britannia Security Group.

The company has so far only traded, albeit phenomenally actively, on the Ofex market, yet has caught investors' imaginations in a big way. A placing in June, mainly with directors, raised pounds 550,000 at 27.5p. Since then shares have risen 10-fold to capitalise the business at pounds 47.6m, rising 120p in a day after a presentation to 40 institutions at the group's City Road headquarters.

Next week we should see the release of a prospectus to take Skynet's shares onto the AIM, with some pounds 2m to be raised at a price of 250p or more.

The excitement lies in the product. Prices are yet to be finalised but subscribers who pay around pounds 400 up front and a pounds 120 annual subscription will have a car alarm and cellular phone installed in their car. Both will function as normal, but linking them to the global satellite positioning system (GPS) and a central bureau operated by Skynet creates a host of other possibilities. A thief who triggers the alarm will also alert the central bureau which can advise the police and even, under police supervision, immobilise the car and lock the doors. Subscribers can ask for directions, information on traffic conditions or even request help if they feel threatened by road rage culprits.

There are yet more possibilities. In October Skynet plans to launch a version enabling truck operators to monitor their fleets for theft, driver operation, security and even to check that temperatures are suitably low in refrigerated vehicles. Service providers, like petrol stations, windscreen repair shops, fast food chains and hotels, may be able to pay to be included in the information provided to subscribers. Shares in rival security companies, like Tracker and Toad, have weakened at the threat from Skynet.

The latest development is a deal with European Telecom, a fast-growing quoted distributor of cellular equipment and accessories, giving the latter exclusive distribution rights in the UK, with Ireland coming later. Skynet expects sales of at least 48,000 units a year. On those numbers, one stockbroker speculates that Skynet earnings per share could reach 17p in the year to 31 July 1997 and 25-27p the following year. A major success would also be good news for European Telecom with its shares at 149p.