Panmure Gordon has retained its 'buy' rating for cash and carry chain Booker after the firm's better-than-anticipated interim results and synergies expected from the Makro deal.

First-half sales rose 3.3% with non-tobacco sales up 4.2% and tobacco sales up 2.0%. Meanwhile, pre-tax profits (before pension credit) grew by nearly 20% to £50.6m, above Panmure's £47m estimate.

Meanwhile, the company said that the Office of Fair Trading's (OFT's) competition review process for Makro - the cash and carry business that was acquired in July - is still ongoing.

Makro's sales are expected to be down 9% this year and the loss will be £18m. The group said that after fair value adjustments to its assets, the depreciation charge will fall by up to £8m this year.

Panmure explained: "Assuming that Makro is consolidated in the final quarter of FY2013 - which is a seasonally weak one - then its contribution to Booker's FY2013 results will be a loss of £10m, partially offset by synergy benefits of £4m. In FY2014, Booker estimate that synergies will rise to £26m, including savings in rent, supply chain, cost of gods, fresh product margins and productivity programmes already actioned.

"[...] There may be some disappointment that the OFT and competition review has not yet been concluded. As a consequence, Makro will be held as a separate business by Booker and for accounting purposes as an investment until the review is complete. The expected synergies from Makro are ahead of our expectations at £26m, versus £20m, which is extremely good news."

To conclude, the broker said that since returning to the stock market, Booker has delivered strong earnings and dividend growth and cash generation. "We think that the addition of Makro will enhance Booker's growth and we remain buyers of the shares with a target price of 108p."

By 11:01, Booker's shares were up 4.13% at 98.25p.

BC

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