View from City Road: Lonrho offers few attractions

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TO ADD insult to injury, shareholders in Lonrho yesterday found that there was very little they could do to stop the deal hatched between Tiny Rowland and Dieter Bock.

It does not require their approval as they gave a blanket authorisation for the issue of 220 million shares in a rights issue at the last annual general meeting. They should think twice the next time they are asked to give their authorisation in advance.

Given the timing of the deal - the last day for applying for the rights shares is 15 January - it will be tricky for shareholders to call a meeting at which the deal could be discussed and Mr Bock could answer their questions.

With this in mind, shareholders might as well concentrate their attention on the numbers. Today's document may give greater details but already it is clear that Lonrho is suffering a cash outflow. Borrowings may have fallen from pounds 1.1bn to pounds 850m in the year to 30 September 1992 but that was after realising pounds 550m from disposals. Meanwhile net assets fell from pounds 1.6bn to pounds 1.04bn after allowing for a pounds 100m write- down of hotels and the removal of intangible assets, including newspapers.

Assuming that only the underwritten part of the rights issue goes ahead, and allowing for the sale of the Volkswagen dealership, gearing looks set to fall below 60 per cent.

The future balance sheet might look acceptable but the profit and loss account is unlikely to match it. The company estimates that in the year to 30 September profits were about pounds 79m pre-tax but only pounds 6m before extraordinary items. This suggests a very high tax charge and high minority charges, pointing to reliance on companies not wholly owned.

Against the background of weak precious metal prices, Nomura believes earnings will be just 2.5p a share this year. On that basis the rights shares are being offered on 34 times earnings. Another reason for steering clear.