Bottom Line: Another bus ride

ONE might ask why, after waiting for ages, as soon as one local bus company comes along it is swiftly followed by another? Stagecoach's flotation in April took plenty of shareholders on board - so many that it went to a 10 per cent premium on the first day of trading.

Badgerline's brokers, Cazenove, are obviously hoping there will be just as many shareholders waiting to take a ride on its float.

But, if the main appeal of these companies is that they grow their earnings by taking over privatised local bus companies and improving their margins, Stagecoach is easily the more impressive.

It has engineered a series of takeovers, whereas Badgerline completed its last one back in 1990. The reason for the lack of activity on that front may be the parlous state of Badgerline's balance sheet.

After it has raised the pounds 36m net flotation proceeds its gearing will still be about 55 per cent. Indeed, it has made it clear that only pounds 13m of the proceeds is earmarked for acquisitions, with the rest going to repair the balance sheet.

In addition, an analysts' meeting yesterday heard that if a proposed property development in Bath fails Badgerline will write down pounds 5.2m through next year's profit and loss account. That is almost as large as this year's forecast pounds 6.7m pre-tax profit.

At the 115p flotation price, announced yesterday, the fully diluted prospective price earnings ratio is 14.5 times. That's a little steep for this local bus company.