Smaller Companies: Little guys who deliver the goods

It's always good to see the little guy giving the big guys a run for their money, especially when the little guy turns a profit doing it.

And the parcel deliveries specialist, Business Post, has certainly managed that, despite competition from the Post Office and the likes of Fedex and Hays. Buoyant recent interim figures were ahead of market expectations. Pre-tax profits rose to pounds 9.38m, from pounds 7.7m for the comparable period, and the interim dividend was lifted to 4.4p, in line with the rise in earnings per share growth - up 2.6 per cent to 12.46p.

Taking on the competition however, does not come cheap. In September Business Post opened its national hub in Birmingham at a cost of pounds 7.3m. This will complement a regional hub opened in Park Royal, west London, to cover deliveries into London, while another regional hub will open shortly in Runcorn, Cheshire.

Nevertheless, funding should not be a problem, with net cash on the balance sheet of pounds 9.8m.

A niche player like Business Post can always hope to make some inroads into the opposition. Given its track record of consistently expanding sales while maintaining profit increases at a similar pace, its future prospects look satisfactory.

The problem for an investor is the level at which the shares are trading. Since a low of 435p, struck in July, they have surged ahead to the current price of 570p. According to stock broker Charterhouse Tilney, the company should generate pre-tax profits of pounds 19.4m in the current year, rising to pounds 23m in 1999.

That translates into earnings per share of 25.82p and 30.61p respectively. That leaves the shares trading at 22 and 18 times prospective earnings. While that sounds about right for a potentially good growth stock, with a sustainable formula, the question arises as to whether the shares are overvalued.

On the basis of its track record, arguably not.

Investors can take comfort in the fact that the founding Kane brothers still own over 50 per cent of the shares between them. On balance,the downside is probably limited. The shares are a buy.