Cowie catches a bus to growth: The Investment Column

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The Independent Online
Cowie has come a long way since its failed bid for Henlys five years ago. It is now the country's second-biggest bus operator, between FirstBus and Stagecoach, and on a roll. Figures for the year to December showed a continuation of the impressive trend that has seen profits rise steadily from pounds 11.3m in 1990 to pounds 81.2m in the latest 12-month period, up 46 per cent. During that period, earnings per share have risen almost fivefold from 6.9p to 33.2p and the dividend from 3.7p to 12.4p (10.4p last year).

The biggest profit earner remains the finance division, although the acquisition of British Bus means it will be overtaken this year. Profits from car leasing and fleet management increased from pounds 33.1m to pounds 34.8m, again the latest in a long line of rises. With 40 per cent of company cars still bought, maintained and disposed of by expensive in-house departments, there is still plenty to go for.

The motor division, while relatively small in group terms, remains a significant player in the trade, with profits of pounds 11.7m putting it on a par with stand-alone success stories such as Pendragon. Cowie should benefit from the manufacturers' desire to rationalise the fragmented car retail system.

The biggest excitement last year, however, lay in buses, where Cowie dominates the London market and by dint of sizeable acquisitions has become a significant player nationwide. The pounds 282m purchase of British Bus last year is still waiting on an MMC investigation, but Gordon Hodgson, chief executive, looked quietly confident yesterday that only minor tweaking where the company overlaps with Cowie's existing south London routes will be required.

Profits from buses jumped from pounds 10m to pounds 30.4m and with a full-year contribution from British Bus and the smaller North East Bus next time, the division will become the group's dominant arm. Although many of the benefits of the move into buses were one-off cost savings, there is a political consensus to improve bus travel and, on a relatively fixed cost base, getting bums on seats could yield significant growth for a while yet, and at much less risk than the train franchises Cowie has (so far) failed to win.

On the basis of forecast profits of about pounds 105m, the shares, down 9p yesterday at 421.5p, trade on 12 times earnings. Good value.