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Your support makes all the difference.Buying in the 37 per cent of Nylex it didn't already own makes sense for BTR for a number of reasons. It removes potential conflicts of interest, tidies up some unnecessarily messy cross shareholdings and could throw up some tax savings.
But the movement in BTR's shares yesterday, down 9p to 332p, underlined the market's reservations - not about the deal itself but for what it says about the company's inability to find anything more exciting to spend pounds 2bn on. There is also a slight concern about gearing, which at the start of next year is expected to be about 100 per cent.
Actually, that should not be too much of a problem, thanks to a steady flow of warrant conversions over the next three years, effectively a rolling rights issue, which should yield pounds 1.2bn over the period. Operating cash flow is also strong, so debts, which also rose sharply and fell again after the Hawker Siddeley acquisition in 1991, will reduce pretty rapidly.
Whether BTR has overpaid for Nylex is quite another point - at a 27 per cent premium to the price at which the shares were trading before the bid, the price is being seen by analysts as extremely full. It is certainly quite high enough for the bid to sail through.
That will please chief executive Alan Jackson, who will now bow out of BTR in December, having tied up all the loose threads. It is hardly a spectacular swansong, but BTR is not a flash company, just a successful one.
Analysts think the deal will be broadly earnings neutral next year and most have left their forecasts unchanged. Having picked up in the second half of last year, profits are set for continued strong growth as the economies in which BTR operates all recover.
After last year's pounds 1.3bn pre-tax profits, pounds 1.55bn is expected for the year to December, followed by pounds 1.68bn next year. On earnings per share of 24.2p this time rising to 29p, the shares stand on a prospective p/e of 11.
That is not too demanding, but at this stage in the cycle, a small discount is probably appropriate, and until gearing starts reducing, the shares are unlikely to do more than track what is expected to be a dull market. Hold on.
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