Bottom Line: NFC gears up to join the logistics revolution

THE MARKET was well prepared for NFC's rights issue yesterday, having marked the shares down 20p since the news leaked out at the weekend. Even at the closing price of 234p the day before the announcement, the rights price of 195p represents a fairly steep discount.

That may reflect a degree of concern about how NFC's fragmented small shareholder base would react to the cash call. BZW, the sponsor, also took care to provide a novel cash alternative to the rights to avoid a disorderly market in the nil-paids.

The management - led by the new chief executive, Peter Sherlock - has big plans for the business. NFC intends to use the proceeds of the issue to position itself better for the expected global explosion in demand for logistics.

The UK has the most sophisticated distribution systems in the world, driven to a considerable degree by powerful retail chains that have seen the benefits of tightly controlling the supply chain.

It is a revolution that Britain is bound to export - European retailers marvel at the high margins achieved by their UK counterparts and have begun to ask why. The United States is changing, too - and, as the world's biggest market, it will provide huge opportunities for companies such as NFC, which can save manufacturers and retailers money. NFC is the market leader in logistics in the UK, so it is at least one step ahead of the competition that will inevitably grow with the market.

The company, which has built up gearing to over 55 per cent, says that it needs the strong balance sheet that will result from the rights issue to keep up with the pace of growth.

Net cash of pounds 90m may seem a touch profligate in a low interest rate environment. But Mr Sherlock points out that large contracts can lead to considerable investment up front - as much as pounds 15m a time.

Contract-backed business like that must be worth having and should pay healthy dividends in the long run. Mr Sherlock deserves his money given a prospective p/e of 16.5 and a yield of 3.5 per cent; shareholders should stay along for an exciting ride.