View from City Road: Taunton unripe for early picking

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The Independent Online
THOSE BRINGING Taunton Cider to market would have saved themselves a few sleepless nights if they had offered the company for sale at a discount to its main publicly quoted rival, HP Bulmer.

As it is, the price of 140p implies an earnings per share multiple of 15 for the year ending April - more or less the same as Bulmer. Taunton is a solid company with good brands in an expanding market. But given the current gloomy state of the stock market and the less than overwhelming reception new issues are getting this summer, this price will not have investors racing to subscribe.

Investors wanting a quick buck should not subscribe at all. Most of the pounds 65m the company is set to receive will be used to pay off borrowings incurred when management bought out Taunton a year ago. Current year profits will be depressed by the interest charge on that debt, which will not be cleared until the flotation money flows in at the end of Taunton's first quarter.

Earnings will also be depressed by the price of apple concentrate sourced in France and Germany which Taunton - unlike Bulmer - depends on for the bulk of its raw material. Frost on the crop and failure of the US citrus fruit harvest (which increased demand for apple juice) doubled the price of continental extract.

Both problems should be one-offs and should be cleared by the year starting April 1993. Outside predictions of pre-tax profits in the region of pounds 20m for 1993/4, compared with pounds 14.8m last year and pounds 16m this year, underline the longer-term appeal.

Take up the offer only on that basis.

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