The sale of a large stake in one of its US holdings, Prime Service, helped Investcorp boost its net profits by 20 per cent last year to $108.6 million, according to figures released by the Bahrain-based investment bank. Analysts say they believe that Investcorp actually made even higher returns than this.

Investcorp bought Prime Service, which rents out construction equipment in the US, for $300 million in 1994, in tune with its strategy of buying underperforming companies, reorganising or recapitalising them and then selling them on.

It sold 26 per cent of the company for $170 million in 1996, then sold the other 74 per cent last July. That deal was valued at $1,160 million, including $260 million of debt (MEED 18:7:97). The bank says it sold another US investment, Dairy Enterprises Corporation, during 1997. It did not give a value for that deal.

Investcorp is cagey about spelling out how much money it makes on its deals. It tends to announce the overall value of a divestment without specifying how much of this value was earned by the bank itself and how much by its Gulf Arab co-investors. Analysts say that Investcorp is more profitable than it lets on in public. 'The results understate how successful Investcorp is,' Nael Mustafa, analyst at Bahrain-based TAIB Securities, told meedmoney. 'They have remained conservative in declaring profits, opting to declare a much lower figure to facilitate the sustainability of the rate of earnings growth for the next few years.'

In 1997, the largest contribution to the bank's net profits was $147.2 million from investment banking income. However, the biggest growth in earnings came from managed funds, which earned it $108.6 million - a 305 per cent increase on 1996. Investcorp started offering an asset management service to its clients last year. General and investment-banking expenses rose by 18.2 per cent to $130.3 million. The bank is paying a $30 million dividend for 1997, equal to 30 per cent of paid-in capital. The rest of its net profits have been retained, increasing the size of its retained earnings to $412 million from $336.9 million. Total assets rose by 10.4 per cent to $1,930.1 million.

Investcorp made four acquisitions during 1997. The purchase of Welcome Break, a chain of motorway service stations in the UK, was the largest, valued at £476 million ($758 million). Investcorp refinanced the bank debt it took out for the deal through an issue of sterling bonds backed by the company's cashflow.

Investcorp also bought stakes in Norwegian outdoor clothing manufacturer Helly Hansen, Falcon Building Products and Werner, both of the US. The latter makes climbing equipment and aluminium components. The bank sold two US real-estate investments in 1997.