Investment: Cool approach to Brake Bros
Tuesday 06 October 1998
AT FIRST sight the acquisition by Brake Bros, the chilled food supplier, of the Watson & Philip's food wholesale business looks like a cool move.
For little more than pounds 43m in cash, Brake becomes the UK's second-largest supplier of dry food to the catering industry, adding to its market leading position in the supply of frozen food. It will also acquire the Watson & Philip's name, with W&T being renamed Alldays after its convenience store chain. Brake will benefit from the good fit of the two businesses, both in terms of cross-selling and distribution. On the former, Brake will be able to bundle together its chilled and dry food offering, tempting its 60,000 customers with discounts. On the latter, the integration of Watson & Philip's 10 depots, plus the merger between the two companies' distribution services, will boost returns and keep overheads down. A perfect recipe, then? Not really.
Before embarking on a buying binge, investors should consider the state of the market. The bulk of Brake/W&T's customers are pubs and restaurants, which are being savaged by the economic downturn. As the recent profit warning from Bass, the pub giant, has shown, when the economy turns nasty, patrons give pub grub a miss.
The second problem is low margins. W&T's wholesale business turned over pounds 182m last year but its operating profits were just pounds 4.6m. With the economy tilting downwards, it is unlikely that margins will climb above a wafer- thin 3-4 per cent. Brake Bros shares took a tumble earlier this month, when the company warned of tough trading conditions. They closed unchanged at 610p yesterday, more than 40 per cent below their 12-month peak. This is still a multiple of 15 times 1998 earnings forecast at about pounds 30m. Given the uncertainty on consumer spending, they are no more than a hold.
- 1 Secret Cinema interview: Why were Back to the Future screenings cancelled?
- 2 Christians: The world's most persecuted people
- 3 Israel-Gaza conflict: The secret report that helps Israelis to hide facts
- 4 Students offered grants if they tweet pro-Israeli propaganda
- 5 Iraq crisis: End 'very near' for Christianity after Isis takeover, says Bishop
Israel-Gaza conflict: John Prescott condemns bombardment of Gaza as a 'war crime'
Thatcher ‘was warned of Tory child sex party claims’
Israel-Gaza conflict: President Obama presses Netanyahu to call ‘immediate and unconditional’ Gaza ceasefire
Lauren Goodger calls for tougher laws on revenge porn after sex tape leaks online
Iraq crisis: End 'very near' for Christianity after Isis takeover, says Bishop
Israel-Gaza conflict: The secret report that helps Israelis to hide facts
A day in the life of Vladimir Putin: The dictator in his labyrinth
Opponents of Israel's military operation in Gaza are the real enemies of Middle Eastern peace
Were 'Poor Doors' added to mixed developments so wealthy residents don't have to go in alongside social housing tenants?
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£28000 - £32000 per annum: Ashdown Group: Training/Learning and Development Co...
£28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...
£40000 - £45000 per annum: Ashdown Group: An established professional services...
£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...