View from City Road: Granada ahead on points

There is a definite sense of deja vu for Gerry Robinson, chief executive of Granada, behind the purchase of the Sutcliffe catering and Spring Grove laundry contracting businesses. He did consider buying Sutcliffe when he fronted Compass, the company he also took very close to buying Sketchley.

While yesterday's deal is good for P&O, Granada comes out slightly ahead on points. Sutcliffe's profit margins of 4.2 per cent on annual sales of pounds 358m are less than half the 10 per cent attained by Compass, making the exit multiple of 18 times earnings on the whole deal look less heady.

Spring Grove has margins of nearly 13 per cent on sales of pounds 85m.

The big negative is that Granada's gearing will soar from last year's 39 per cent to around 80 per cent. That figure, however, should fall to less than 50 per cent next year, as Granada harnesses the strong operating cash flow of Sutcliffe and Spring Grove, respectively pounds 13.4m and pounds 7.1m in 1992.

The deal also marks a slight shift in Granada's strategic direction. The company's TV rental business, which has for so long been the provider of the lion's share of profits, will see its pre-purchase contribution fall from 59 per cent of the total to 50 per cent, and below that by the end of this year.

A big plus for shareholders is that there will be no earnings dilution. The effect in the current year to September will be slightly positive, lifting analysts' projections for earnings per share from 22.7p to 23p and for 1993/94 from 26.3p to 28.7p.

The respective p/e multiples of 16.7 and 13.4 make Granada shares, up 20p yesterday to 385p, look safe to bank.

As for P&O, the disposal smacks of a balance sheet strengthening exercise, notwithstanding the company's protestations. Having already exhausted the rights option in 1991 but not yet being able to sell significant amounts of its pounds 1.7bn property portfolio, P&O had few choices in raising cash.

Gearing at the year end was 84 per cent, which looks high given the extra working capital required of a transport business in an upturn. Ironically, it is not much higher than Granada's new level of borrowings.

The deal reduces that ratio to just 60 per cent, which should be manageable.

That assumes no further write- downs are required. Last year P&O reduced the value of its portfolio by 8 per cent, following a 4 per cent cut in 1991. And it reduced the value of its housing land bank by pounds 30m to about pounds 25,000 a plot.

Buoyed by recovery hopes, P&O's shares have outperformed by 45 per cent in the last six months and may now pause for breath. The yield of 6.3 per cent provides support.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links