View from City Road: Situation desperate but not grave

It is scarcely a grave accounting issue but there is a slightly desperate air to the way in which Great Southern, the funeral services group, has snaffled an actuarial surplus on its 'pay now, die later' funeral plans to bolster its profits.

Currently on the end of an unwanted pounds 87.4m bid from US Service Corporation International, Great Southern yesterday fired off its last defensive salvo. The principal points were a 10.9 per cent increase in interim pre-tax profits to pounds 3.8m and the forecast of a near-15 per cent dividend increase for the year to 14p after a 12.5 per cent rise at the halfway stage.

Core retail funeral and crematoria operations were slightly lower. The growth came from Great Southern's pre-arranged funeral plans business - up from pounds 552,000 to pounds 774,000 - which in turn was bolstered significantly by counting in an actuarial surplus on its Chosen Heritage schemes. The surplus is put down to good investment returns on the pre-paid business, not wrong assumptions about mortality. The as yet unburied might nevertheless question whether the company actually has any right to this money. The issue will hardly rival the row about allocation of pension fund surpluses between companies and scheme members, but it is similar in nature.

Great Southern shareholders are being offered 600p a share or 20 times historic earnings. The stock market values Great Southen shares at 627p but what dealers think is in the end pretty irrelevant. For SCI to succeed it must win over the five trusts owning 70 per cent of JD Field, which in turn owns 56 per cent of Great Southern. The directors say that Great Southern is a unique platform for SCI or any outsider to expand into the UK and the price offered is inadequate. They may well be right. Schroders, SCI's advisers, will remember how their client Hasbro was recently trumped by Mattel in the battle for JW Spear, the Scrabble board game company. Despite the funny accounting, SCI is going to have to pay more to win.