The Investment Column: No hidden value in ailing Woolworths

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The Independent Online

Woolworths would have the City believe that the wonder of the company lies in its transformation under Trevor Bish-Jones, who took the helm after its demerger from Kingfisher. Under his watch, the retailer has made a concerted attempt to carve out a niche as a one-stop shop for all the mums out there.

What with selling most of its "Big W" stores - the ill-fated venture into out-of-town superstores dreamt up by the old Kingfisher guys - and attempting to sell MVC, its underperforming music chain, the group is almost free to give its largely shabby estate its full attention.

Yet for investors, the true wonder of Woolies was that the retailer nearly got taken off their hands for the princely sum of £837m. Had Apax, the private equity group doing due diligence, not got cold feet, Mr Bish-Jones would not have had to spend yesterday talking up another less-than-sparkling trading update.

Woolworths may be a favourite punt for the stock market's speculators, but it was the last retailer that sector experts seriously expected to land a takeover offer. For starters, the group owns just two freeholds out of 806 stores (in Jersey and Guernsey because it has to in order to trade there) so there is no hidden value in its estate for property whizzes to unlock.

Then there's the small matter that Mr Bish-Jones and his team have already squeezed costs and continue to run a tight ship. Another 80 jobs have gone at its London head office in the past six months. Combine that with the fact that the outlook for all retailers, let alone aged "variety" retailers, is more than tough, and you begin to see quite how surprising Apax's 58.2p-a-share bid interest was.

Yesterday the group said underlying sales fell 4.4 per cent in the 24 weeks to 16 July across its main retail estate - no worse but no better than at the start of June. Its entertainment arm fared better, with a 16 per cent rise in sales at Entertainment UK, its wholesale business that supplies CDs and books to the likes of Tesco.

Woolworths shares trade on a profit/earnings ratio of 12, a warranted discount to the sector. Avoid.

Cranswick is still a tasty option

Investors can expect another meaty profit from Cranswick this year. The producer of fresh pork, gourmet sausages and delicatessen cooked meats is enjoying some significant sales growth, about 7 per cent for the past three months, according to its statement at the annual shareholder meeting.

Add to that the expected contribution from Perkins, the cooked meats business it bought in January, and this is a business with 53 per cent more sales than it did a year ago. Perkins has been integrated well, we are told, and ought to come into its own over the summer season, a key selling time for picnic sandwich fillers.

The Yorkshire-based company recently completed a £20m capital investment programme that highlighted once again the management's sturdy grip on the business. It has sold its pig herd, reducing the cyclicality of the business. With supermarkets forever breathing down the necks of their suppliers, this sort of active management is vital.

Cranswick also includes sandwich-making, animal feed and pet food businesses, the performances of which have been mixed, but Investec, the house broker, is still expecting pre-tax profits of £30.6m this financial year, up from £23.6m. A solid hold.

Keep hold of your slice of Domino's Pizza

Last year it was the Double Decadence pizza, with its double-stacked pizza base filled with a cheese sauce, that was a hit for Domino's Pizza. This summer, it is the Cheese Steak pizza from Domino's that is appetising customers and delivering yet another strong set of sales figures for the group.

The Domino's on AIM operates the UK and Ireland franchise of the global brand that has been around since 1960 and has been the bearer of consistently strong results. We have long been supporters and if you had followed our advice and bought the shares at 98.5p in 2003, you would have enjoyed a very tasty profit of more than 200 per cent.

The first six months of 2005 has proved equally successful, with a record 23 stores opened and pre-tax profits for the up 23 per cent to £5m. Like-for-like sales in its older 317 stores were up more than 8 per cent. The company has 380 outlets, and is aiming to open 50 a year until it gets to 1,000. Because it generates lots of cash, Domino's can keep opening stores without having to jack up borrowing, and the franchised nature of the operation means central overheads are low.

Now, 11 per cent of sales are through the internet and it plans to expand further with interactive sales - ordering by text is next.

With the best brand in a sector that is still largely fragmented and localised, Domino's is well placed to eat up more market share.

Domino's still has plenty of growth potential. Earnings are expected to grow by 20 per cent over the next two years. The shares are now an expensive bite for new investors at 22 times earnings. Existing investors, though, should keep enjoying their slice.

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