Bottom Line: Contraction pains
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Your support makes all the difference.THERE will be little surprise among Southern Business Group's many disgruntled customers that the price the company has paid for cleaning up its contracts has been a reduction in pre-tax margins from 30 per cent to nearer 24.
The buoyant returns achieved in easier days were paid for by small businesses saddled with over-long, inflexible and on occasions (by the company's own admission) fraudulent contracts.
An overdue OFT investigation has accelerated a much-needed shake-up of the industry, the result of which has been a shift in pain from consumer to shareholder. Southern's shares were 140p a year ago compared with yesterday's close of 82p.
Looking ahead, the tighter regime in which Southern will operate will limit profits to perhaps pounds 13m this year, implying a prospective p/e of 8. That does not look demanding, but the regularity of nasty surprises over the past year means the sizeable discount will persist.
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