Shareholders are being asked for pounds 19.5m in a one-for-five placing and open offer at 290p a share fully underwritten by Hill Samuel. Despite gearing rising to 290 per cent after the deal, the bank is also making available a borrowing facility of pounds 32.7m, which should leave plenty of slack for further acquisitions.
With its existing London Central operation, the latest acquisition will give Go-Ahead 18 per cent of the metropolitan market and a commanding position south of the Thames, which is fertile ground for bus operators given the poor Underground coverage.
Vigorous cost-cutting by the existing management has raised operating profits before execeptionals from pounds 2m before the original buyout at London General in November 1994 to pounds 7.67m in the year to March. That puts an earnings-enhancing exit multiple of eight on the deal, once cash balances of pounds 7.3m are stripped out, but it reflects the risk of owning a company a fifth of whose routes are put out to tender every year. Go-Ahead reckons it can offset the risk with cost savings from merging the two London businesses. Those could be worth at least pounds 850,000 a year and there are still other operators in the capital to be bought.
If profits rise from a forecast pounds 11.5m this year to pounds 21.5m in 1995-96, the shares, up 30p at 340p, are on a forward p/e of around 10. Good value.Reuse content