Smaller Companies: Profit potential in Spanish petrol stations

RECOVERY stock fans should take a close look at DC Cook, the motor dealer that also owns a Spanish petrol station development company, Norfolk Espana.

After incurring significant start-up costs last year, the business is beginning to live up to its potential. Norfolk is believed to be close to selling two new petrol station sites.

The sites are likely to command a price of between pounds 400,000 and pounds 600,000 each and should generate a big profit for Cook.

Their disposal will take the number of sites sold by the Spanish business in the last 12 months to five. It is thought to be in talks with buyers for the sale of another seven sites.

Norfolk Espana specialises in identifying promising greenfield sites. It then secures a right to buy and seeks planning permission to develop them into petrol stations. Once permisson is granted, the sites are sold on to big multinationals.

The business is lucrative because Spain's petrol retailing industry has, until recently, been controlled by a state monopoly. At present there are just 4,000 stations serving the entire country, compared with 19,000 in the UK.

Shell, for example, has just 25 petrol stations in Spain at present. Not surprisingly, many oil companies are keen to expand in Spain, but obtaining planning consents is cumbersome and time-consuming.

Last year, Norfolk sold two sites for about pounds 1.7m to an unnamed buyer. The price tag provides some indication of the company's potential, although an average site with planning permission is worth about pounds 400,000.

That said, Cook is well placed to benefit from the deregulation. It has identified about 150 sites for development and has bought the rights to about 27. It has planning permission for a dozen of these locations.

Next month Cook is likely to report a strong recovery in full-year results to 30 April. Albert E Sharp, the Birmingham stockbroker, is predicting taxable profits of pounds 1.25m against a pounds 1.5m loss in 1991. Profits this year are forecast to double to pounds 2.5m, rating the shares - at 38p - on an earnings multiple of 10 times.

Moreover, Cook's net assets per share are estimated at 35p but do not take the potential of the Spanish sites fully into account. A speculative buy.