The Investment Column: Goode Durrant

GOODE DURRANT, the van hire business, crashed last year when it warned that prices for re-selling its old vehicles were tumbling. Since then it's pulled off a few fancy tricks in the way it accounts for depreciation and has opted to keep the vans in use longer. The shares have recovered somewhat and the group expects to break even on secondhand van sales this year. But although Durrant has addressed the problem, its shares are still off their 601p high. Given the group's earnings potential, that seems unfair.

Goode Durrant is the market leader in van hire. In the last year it increased its fleet by almost 30 per cent as part of its plan to double profits in the next five years. To achieve its goal, the group must deliver 15 per cent annual earnings growth. It is opening around 60 new sites, focusing on supporting existing depots with smaller satellite offices in outlying towns which will rely on their regional parents for maintenance support. The strategy is not rocket science, it is simple economics but Durrant exploits that to offer customers a unique no-fee use-or-return option on its vans.

Durrant has less than 15 per cent of the market at present. There is much to go for. Right now things are cut-throat and Durrant's less competitive rivals are slashing prices in the pursuit of volume. Given they are less efficient than Durrant, such a strategy will not be sustained, and hire prices are expected to rise.

House broker Credit Suisse First Boston expects pre-tax profits of pounds 31.5m and earnings of 35.6p this year, rising to pounds 36.1m and 40.5p in 2001. Durrant's expansion plans will cost it around pounds 1bn. But when completed, none of its competitors will be able to replicate its offers or efficiencies. The shares, which closed up 13.5p at 477.5p are on a forward p/e of 13. That's too cheap. Buy.