Grafton is tracking British Dredging
GRAFTON Group yesterday declined to comment on strong preliminary results from British Dredging, the Cardiff-based group in which it holds a 29.9pc stake. The UK group boosted pre-tax profits by 36.6pc to stg£2.921m and is confident about the prospects for 1998.
Grafton took the significant stake in British Dredging a year ago when it purchased 5.5 million shares at stg£1.45p for a total of stg£7.9m. At the time Grafton said that British Dredging had some difficulties but was a good business. The group's prospects have improved significantly since.
British Dredging's chairman Michael Brown stated yesterday that ``having disposed of the group's loss makers, and taking into account the group's new opportunities and the increase in maturity of the group's more recent Selco openings, the board is confident of the group's prospects for 1998''.
Industry sources have indicated that Grafton has been having exploratory talks with British Dredging with a view to a possible takeover of the company. British Dredging announced four weeks ago that it had received an approach which may or may not lead to an offer for the group.
Mr Brown said yesterday that over the past month ``discussions have continued and a further announcement will be made in due course''.
There are a number of similarities between British Dredging's operations and those of Grafton Group's divisions in the UK. Both companies have specialist plumbing supplies and builders merchanting businesses.
In strategy there are also similarities. Mr Brown said yesterday that the group's current strategy is ``to acquire builders merchanting related businesses which are already profitable, will be immediately earnings enhancing and also have additional benefits of synergy when added to the group's existing builders merchant subsidiaries''.
This strategy has been the core of Grafton's expansion for some time. As one of the Top Ten UK builders merchant chains, Grafton is now of a size where additional acquisitions in the UK augment its buying power and increases margins.
British Dredging is in discussions concerning two more potential acquisitions in the builders merchanting area.
The UK group has disposed of tool hire businesses and a concrete products business and had net cash of stg£4.94m at December 31. It is now exploring tax efficient methods of returning surplus cash to shareholders.
Acquiring the outstanding 70.1pc stake in British Dredging would cost Grafton over stg£20m but the net cost could be reduced significantly by the disposal of ``non-core'' businesses Avonmouth Ship Repairers and British Dredging Aggregates.