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.

peopleFrankie Boyle responds to referendum result in characteristically offensive style
Life and Style
Couples have been having sex less in 2014, according to a new survey
New Articles
i100... with this review
Holly's review of Peterborough's Pizza Express quickly went viral on social media
footballTim Sherwood: This might be th match to wake up Manchester City
Arts and Entertainment
musicHow female vocalists are now writing their own hits
New Articles
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
Blahnik says: 'I think I understand the English more than they do themselves'
Arts and Entertainment
Michelle Dockery as Lady Mary Crawley in Downton Abbey
TVInside Downton Abbey series 5
Life and Style
The term 'normcore' was given the oxygen of publicity by New York magazine during the autumn/winter shows in Paris in February
fashionWhen is a trend a non-trend? When it's Normcore, since you ask
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam