Ever since Grafton's Michael Chadwick first bought a chunk of Heiton, Current Account has occasionally compared the qualities of both companies. So has the market, and it's pretty obvious what investors think of both companies - Grafton is a far superior beast to Heiton and it may only be a matter of time before Grafton builds on its 23 per cent of Heiton and takes its smaller rival out.

In its trading statement this week, Heiton based its downturn on weaker demand in Irish construction, continued dismal trading at its Cooper Clarke subsidiary in Britain and a bad debt from the collapse of housebuilder Lark Developments. The shares fell 10 per cent, so no surprise there. But take a look at Grafton, which is a similar, if larger version of Heiton.

The two firms are almost carbon copies of each other in terms of their range of businesses, if not in terms of scale. So logic would suggest that Grafton is facing the same sort of problems as Heiton - and so its shares should also fall. But the shares didn't fall, they actually rose a few cents and traded at €3.03 yesterday afternoon. This values Grafton at around €520 million, more than four times the size of Heiton.

All Michael Chadwick has had to say about his stakebuilding in Heiton is that it is "an investment", but very few believe that Grafton has blown €30 million on Heiton shares simply as an investment. Either Grafton has built the Heiton stake as a defensive measure against the likes of Wolseley (already in the Irish market through Heatmerchants) or it has built a platform for a bid. No other motive explains spending €30 million on a smaller rival.

At Davy's revised forecast 2001 earnings of 35.9 cents (down from 40.6 cents), Heiton is trading on a prospective earnings multiple of less than 6.5 times earnings - and less than 5.6 times earnings based on 2002 forecasts. Not particularly expensive, one might think, especially as Grafton is trading at nine times earnings.

But even with a bid premium, Grafton could still look at a bid that would be immediately earnings-enhancing. One analyst has described a merger of the two operations as a "win-win" situation - if Grafton managed to get the takeover through the Competition Authority without any major adjustments.

Heiton's buyback of 743,000 shares has probably put a €2.25 floor under the shares. But the upside from there is very limited and presents Grafton with a golden opportunity.