The Investment Column: Business Post delivers the goods

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The Independent Online
Business Post has been an unlikely success story since it floated at 120p nearly four years ago. The company is still a minnow in the fiercely competitive UK market for express delivered parcels and packets.

Its 3 per cent market share, built up using a unique franchise and regional hub system, puts it at number eight or nine, behind giants such as the Post Office's Parcelforce operation, Securicor and TNT. But the shares' 128 per cent outperformance since launch speaks for itself, even if they were down 5p at 478p on a bad day for the market yesterday.

Even though profits growth has steadily slowed over the past few years, a 24 per cent increase to pounds 16.1m in the latest 12 months to March is still highly respectable, given the increasing size of the group. Earnings per share expanded by 21 per cent to 21p.

The company is demonstrating its confidence in its own financial strength by using close to half its pounds 9.8m cash pile to pay a special dividend of 9.1p a share. Together with the second interim of 6.9p, this will be paid on 1 July to beat any move by the Chancellor, Gordon Brown, to scrap or reduce advance corporation tax.

The group denies any pressure to pay from founding brothers Peter and Michael Kane, both of whom have relinquished executive duties at the group over the past 18 months, but the special payment means the exiled pair will scoop a pounds 7m windfall from dividends this year.

Certainly, there seems little reason to doubt the management's claim that the group can pay the dividend and meet its capital expenditure requirements over the next few years. All of last year's tripled capital expenditure at pounds 7.5m was easily covered by operating cash flow of pounds 14.5m, which augurs well for the current year's budget of pounds 7.8m.

The new regional hub in London's Docklands will allow Business Post to attack the big but fragmented City of London market, while "super regional" hubs in Runcorn later this year and in north London by 1999 will complete its network. But the real boost should come from the pounds 7.1m national hub due on-stream in Birmingham, which will cut costs and increase capacity by between 100 and 400 per cent.

Profits of pounds 19.3m this year would put the shares on a forward p/e of 19, making them a firm hold.