SGB's flotation value slips back to pounds 112m

SGB, the scaffolding group being floated by the John Mowlem construction group, will be valued at pounds 112m when it comes to the stock market this month, around pounds 25m less than expectations in May. Mowlem blamed difficulties in finding quoted comparative companies to what is one of Europe's biggest scaffolding suppliers, but there was also institutional resistance to the higher valuation.

Gerry Brown, the construction group's finance director, said: "There are a lot of attractive investment opportunities for the available cash. We have to be honest with ourselves that scaffolding is less attractive than some of the more glamour industries."

The 150p-a-share price fixed upon resulted in a 30 per cent over-subscription of the 49 per cent stake in SGB placed by Mowlem among City investors yesterday morning. But Mr Brown said there had been some resistance among institutions to paying higher prices for the shares, which some observers had been expecting to be launched nearer 175p. One analyst said yesterday the shares "should be successful at this sort of level. I can see them moving ahead to 165p fairly quickly."

Mr Brown said the final value of the placing was still above the level originally mooted when the flotation process started. Then they had been thinking in terms of net asset value, which, depending on the amount of debt loaded onto SGB, is expected to be around pounds 93m.

The pricing level agreed on means SGB will raise pounds 34.3m from the flotation, with another pounds 18.9m going to Mowlem, which will book a profit of pounds 9.5m on the deal, offset by a non-cash charge of pounds 37.1m to cover goodwill previously written off. Effectively all the money raised by both parties in the float will be used to repay a pounds 50m 11.5 per cent Eurobond issued by Mowlem, which will incur a penalty of around pounds 7m as a result of redeeming it early.

Based on last year's operating profits of pounds 16m for SGB, the 150p placing price represents 12 times historic earnings, which falls to 11 based on analysts' forecasts of around pounds 18m for the current year.

Bob Stokell, SGB's chief executive, said he was "absolutely delighted" with the way the placing had gone. "We gain a terrific base of blue-chip shareholders. The oversubscription ... should lead to a buoyant and healthy aftermarket. We have an exciting future ahead."

Mr Stokell and the three other executive and three non-executive directors are putting up around pounds 250,000 to buy shares at the placing price. Most of that sum will come from Ken Minton, non-executive chairman, who is buying some 100,000 shares. In addition, executive directors are being granted share options worth three times salary, which range from just over pounds 100,000 to a little more than pounds 160,000 for the chief executive. The options are being priced at the mid-market close following the first day's dealings, which are expected on 25 June.

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