Companies: CC.   

Greeting cards retailer Clinton Cards announced it intends to purchase rival Birthdays Group for £46.4m. The cost will be covered by a new banking facility for £110m.

The group argues the cash generative nature of its business will enable the debt to be steadily reduced. At the interim stage to August, Clinton's increased turnover by 9% to £183.2m and pre-tax profits were up 26% to £1.92m. Like-for-like sales for the seven weeks to mid-September were up 2.6%. Operating almost 800 stores, the company intends to run Birthdays as a separate brand, but it expects to make cost savings by consolidating the head office functions, improving the supply chain management of the enlarged group and rationalising the store portfolio. For the nine months to March, Birthdays made a pre-tax loss of £1.97m, but this was a huge reduction compared to the £14.2m loss it incurred for the year to June 2003, predominantly from a stock write-off, and pension and redundancy costs. Birthdays operates 500 stores across the UK. Clinton expects the acquisition to be earnings-enhancing by the second year of ownership. Analysts had forecast Clinton to make a £31.25m pre-tax and goodwill amortisation profit of £31.25m in 2005, but this will be adjusted. By applying its own operating methods to the acquisition, the much enlarged group looks like a very interesting proposition. Considering its prospective p/e is a mere 8.9, buy now.