AutoLogic cashes in on car bonanza

By THIS IS MONEY
Updated:

 

CAR dealers have been enjoying record sales, and the benefits of the motoring boom have not been lost on distribution firm AutoLogic Holdings.

The company transports vehicles from manufacturers to dealerships, but adds value along the way with extras such as vehicle storage, the fitting of sun roofs and personalised customer delivery through its E-nable business.

It is the biggest car distribution business in the UK, and customers include Ford, Jaguar and BMW, for which it transports the Mini. It also operates on the Continent and has global links.

AutoLogic, headed by chief executive John Merry, has seen strong trading conditions at home, though it said in its interim results in August that conditions were less buoyant on the Continent.

Excluding goodwill writedowns on acquisitions, those results showed profits more than doubled at £15.8 million on turnover up almost 165% at £353.9 million. The figures were boosted by the £125 million of acquisitions made last year, including a 40% stake in Renault's distribution business, where it has an option to increase its holding.

AutoLogic also bought Axial, Tibbett & Britten's car transporter arm, which left the logistics firm with a 7.3% stake in AutoLogic that it is expected to sell soon.

AutoLogic's work for manufacturers should stand it in good stead with the current reform of block exemption rules, under which car makers have been able to offer dealerships exclusive contracts.

The reforms are likely to lead to much bigger dealership groups, which will want to be served by a large business, and new players, perhaps supermarkets, which could value AutoLogic's services.

Floated in 1997 at 250p a share, management and employees still own about a quarter of the company. The consensus of analysts' forecasts are for earnings per share of 46.7p for the current year and a dividend of 10.6p.

The shares, which closed last week at 400p, value the group at £173 million. They trade at 8.6 times earnings and offer a prospective yield of 2.7%.

• Midas verdict: The shares will remain nervy ahead of any placing of the Tibbett stake, but if this is successfully executed the market should begin to focus on fundamentals. On that score, Autologic has merit, though investors must buy into the growth story since the dividend yield is nothing special.

It has enjoyed good growth and shown an ability to bed down acquisitions, and the potential spur of block exemption reform supports a buy recommendation.

Smooth change at top for SSE

IAN Marchant will take over as chief executive at Scottish & Southern Energy at the start of next month and will inherit a good company that should reward investors.

Marchant, at present SSE's finance director, takes the helm from Jim Forbes.

The business was formed in 1999 when generator Scottish Hydro merged with supply company Southern Electric.

It is Britain's biggest generator of electricity from renewable resources and operates regional electricity companies in the form of Southern and Swalec.

With five million customers in England, Wales and Scotland, it also supplies gas and has an electrical goods retailing arm.

While the demise of British Energy has turned the spotlight on the potential dangers for investors in the sector, SSE should offer a relatively safe haven.

It has coped with the harsh electricity price market and its commitment to renewable energy, including wind farms,

aligns it with Government policy to promote such production.

The shares closed at 651 1/2p on Friday, valuing SSE at £5.6 billion. Based on an estimated earnings-per-share figure of 54.3p for the year to next March, it trades on a reasonable multiple of 12. A historic dividend yield of

5.1% is attractive and SSE has pledged to increase it by at least four% above inflation until March 2004.

SSE lost out in the sale of regional electricity firm Seeboard this year, though it is believed to be in the running to buy Midlands Electricity.

Rumours of a merger with ScottishPower are likely to raise their heads from time to time, and with its strong balance sheet SSE would have the upper hand.

• Midas verdict: Marchant's stepping up should ensure continuity at SSE and on fundamentals the outlook is good. The yield is admirable and corporate action could produce capital growth in the short term. The shares are a buy.

Midas update

SPECIALIST chemicals company Yule Catto has been a solid investment since we rated it a buy at 189p in May last year, and results this month underpinned its merits.

Interim profits jumped 47% to £26.5 million, helped by a continued rise in margins in its core polymers business. It also continued its long record of dividend growth, lifting the half-time payout from 4.9p to 5.1p.

On the downside, raw material costs are up and Yule still awaits a ruling on whether the US will allow generic competition for AstraZeneca's ulcer drug, Losec. Yule supplies drugs makers with the key ingredient for the generic form of Losec for sale in other markets, and a US green light could boost profits by about £6 million.

The shares have dipped since the results and last week deputy chairman Michael Peagram cut his stake, hitting the shares. They closed at 334p in May but are now 255p. While Yule still looks good, stand by the stop-loss level of 250p we set in March.

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