maller Companies: A little knowledge is a useful thing

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The Independent Online
In A competitive world people need first class training and reliable, up-to-the-minute, easily accessible information. Two very different companies catering to these needs are BPP Holdings at 360p and Barbour Index at 378p. Both companies are emerging from several difficult years when they were hit by recession. A pointer to the better times ahead is that each company has used its strong cash generation and cash-rich balance sheet to keep the dividend moving ahead even in the bad times.

BPP is the market leader in helping white-collar workers and students pass exams through classroom teaching and textbooks. Chairman Richard Price says the company is benefiting from a growing awareness of the value of real qualifications based on exams which people can fail. He cites as an example the Chartered Association of Certified Accountants where numbers taking the course have swelled from 100,000 to 120,000 in the last two years. In total there are 300,000 students in the UK seeking some kind of accounting qualification.

BPP has widened its range to offer courses for the City, actuaries, law and even medicine. The effect on profits hasn't fully filtered through because many courses run for several years. However, prospects look good and the group has been expanding its capacity in London and opening in regional centres like Reading, Luton and Southampton.

The wild card in BPP's portfolio is its language school business, Linguarama, which struggled to make a nominal profit in 1994 but rebounded strongly in 1995 helped by the closure of loss-making schools in Japan and Belgium. Profits of pounds 873,000 on turnover up from pounds 15.7m to pounds 20.3m represents a profit margin under five per cent which Richard Price hopes to drive up towards 10 per cent over the next couple of years.

Last but not least is progress at the group's independent sixth form colleges where more than half the pupils are taking A-levels for the first time. Parents use the colleges to save on boarding school fees and pupils benefit from a focused approach to passing exams. And in the publishing division Letts Educational Publishing, acquired in 1991, is enjoying booming demand from the new regime of written tests for seven, 11 and 14-year-olds.

These positive factors should take current year profits from pounds 8.5m to pounds 9.25m or more, with further healthy growth likely in 1997. On a prospective price/earnings ratio of around 17 the shares are not strikingly cheap but should prove a rewarding investment.

Shares in Barbour Index, by contrast, look seriously expensive on a P/E of 56 for a company which is likely to report only modestly increased profits for the year ending 30 April 1996. But the group is on the cusp of a major technological change as its information products move from microfiche to CD-Rom and a profits explosion is likely over the next two to three years. The group says that as the entire pounds 2.5m to pounds 3m cost of developing its new service has been charged against profits, the numbers for past years are misleadingly low.

Barbour's core business is supplying a products "bible" for the construction industry. It began with librarians in mini-vans who kept customers' libraries up-to-date. This was followed by a microfiche service and a compendium listing more than 20,000 products. Three years of developing the CD-Rom range and the slump in the construction industry has kept Barbour profits flat to falling for the last five years after sizzling growth in the late 1980s.

The new product range consists of three services aimed at architects and designers, civil and structural engineers, and building-services engineers respectively. Each service, based on a single disk delivered every two months, costs pounds 3,000 a year for a first user, compared with pounds 1,500 for the microfiche. Further users at the same office pay pounds 400. The company hopes the service, called Construction Expert, will become an indispensable tool on every desk.

Chairman William Griffin says the company intends to expand the service to other disciplines such as building site managers, contractors, builders' merchants and to health and safety. Around 1,000 orders have already been taken but the real payback won't come before 1997 because of hefty first year marketing expenses. Analysts are predicting a profits sequence of pounds 2.3m, pounds 3.5m and pounds 4.5m-pounds 5m between now and 1997 to drop the P/E to around 20; that looks high but Barbour profits could continue to storm ahead for the rest of the decade making the shares excellent value.