The Investment column: Metamorphosis at P&P

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The Independent Online
When companies change their name it is usually because they wish to put behind them a past they would rather forget. If that is the case P&P, the computer services metamorphosing into Skillsgroup, ought to have dropped its name five years ago.

That was when the Lancashire-based group slumped into losses after becoming horribly exposed to the cut-throat market of shifting boxes of high-volume, low-margin personal computers. Since then P&P has reinvented itself by branching into training, consultancy and technical support. The transformation, carried out by the same management team led by managing director David Southworth that took P&P to the brink, has worked wonders for the bottom line and the share price.

In the year to November pre-tax profits rose by 14 per cent to pounds 14.3m on sales pounds 2.3m higher at pounds 344m. Fully diluted earnings per share advanced 15 per cent to 12.7p while the dividend was lifted by 16 per cent to 3.65p.

The results were helped by first contributions from two acquisitions which chipped in profits of pounds 2.2m on sales of pounds 23.5m. Myriad, bought for pounds 12.5m in April, supplies contract and permanent information technology (IT) personnel to big corporations, while QA offers consultancy, training and IT contracting and recruitment services.

Excluding pounds 13.2m of loan notes issued to pay for these acquisitions, gearing is low at 16 per cent, allowing scope for further deals. However, Mr Southworth has clearly learnt from bitter experience, vowing to acquire people rather than product businesses.

The P&P name will live on as a supplier of desktop products and services, which still account for over a third of profits. But the group should benefit from the rush to upgrade computers ahead of the millennium.

House broker Panmure Gordon is looking for pre-tax profits of pounds 17.5m this year, implying a price/earnings ratio of 12 with the shares up 4.5p at 181p.

The rating looks undemanding compared with fancy multiples of other computer services groups like Misys. Good value.