Bottom Line: BSM passes first test

BRITISH School of Motoring passed its first test as a learner public company yesterday. Institutional interest in its share placing was reportedly strong, despite a relatively expensive price of 170p a share.

That price translates into a prospective p/e ratio of about 15 times, based on a pro-forma profits forecast of pounds 4.35m before tax this year.

Potential investors through the intermediaries offer part of the flotation have to ask themselves whether BSM's long-term prospects justify such a market rating at a time when there is no shortage of other new issues around.

On the positive side, BSM is the dominant player, with 15 per cent of the market, and the brand leader. It is well run, with an experienced management, and has just signed an attractive sales and marketing deal with Vauxhall.

The company argues that it will benefit from legislative changes requiring better standards of driving supervision. But the changes may attract other players to a business that has relatively low entry costs. If the AA marketed its driving lessons business more aggressively, the strength of its brand means it could prove a potent threat.

BSM's very dominance makes it difficult to see how it can significantly expand its business over the long term. In the short term, however, it is clearly solid and affords little risk to widows and orphans. Indeed, its shares will probably go to a small premium when dealings begin. But there are plenty of other potentially more exciting investment opportunities around.