The Week In Review: Bright prospects at Signet as jewellery market glitters

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The Independent Online

Signet, the jewellery retailer formerly known as Ratners, narrowly missed out on a return to the FTSE 100 this week, but that ought to make little difference to the sparkling prospects for the shares.

Signet, the jewellery retailer formerly known as Ratners, narrowly missed out on a return to the FTSE 100 this week, but that ought to make little difference to the sparkling prospects for the shares.

Despite having almost 70 per cent of its business in the US, where it trades as Kay Jewelers and Jared, it has been able to shrug off the collapsing value of the dollar. Profits in the first three months of its financial year were up 17 per cent. If the dollar had stayed where it was, the increase would have been 33 per cent.

Signet is expanding fast, increasing selling space in the US by 6 to 8 per cent a year. Diamonds are its best friend, accounting for 70 per cent of US sales, so the challenge there is to get customers to go for higher-price rocks. In the UK, it is simply to get women buying as many diamonds as their US sisters. The trends are good, with gems increasingly seen as work-outfit accessories, not just going-out wear.

The competitive environment doesn't look too tough, with rising US employment bolstering consumer confidence. The UK, where interest rates are on the up, may not stay so robust but the company is cutting administrative costs here. Buy.

ARLA FOODS UK

Arla Foods UK, a product of last year's merger with Express Dairies, surprised its rivals by winning the contract to supply Asda supermarkets, a deal which gives the dairy group a solid financial underpinning. Now, it has also unveiled a two-year contract with TNT to deliver parcels and large letters on its milk floats. Meanwhile Arla's Lurpak and Anchor Spreadable are roaring ahead, as is Cravendale, one of the UK's few luxury milk brands. Cravendale still has only 3 per cent of the total market, so there is far to go. Buy.

TELECOM PLUS

Charles Wigoder, the man who sold Peoples Phone to Vodafone in 1996 for £77m, is now supplying fixed and mobile telephone services, electricity, gas and internet services to homes through Telecom Plus, his latest company. Despite storming customer growth, the worry is energy prices, which are linked to the oil price. Will Telecom Plus be able to pass on the increased costs to its customers? Fluctuating energy prices should not deter investors long term but it seems sensible to wait a while before buying.

SEVERN TRENT

Much depends on what the water regulator concludes from his review of the industry, its prices and its investment plans. Severn Trent has put in for an ambitious £2.9bn capital expenditure programme that would be financed by a 31 per cent rise in water bills. The signs are that the regulator will be gentle on the industry but this remains an area of obvious risk. Hold.

CHRISTIAN SALVESEN

Things have gotten worse at Christian Salvesen, the logistics group. After a failed takeover bid last summer, shares slumped once more. A string of profit warnings were followed last month by the departure of its chief executive of seven years, Edward Roderick, and there is almost a feeling of defeatism emerging from the company. Maybe new blood will be the tonic, but for now it says short-term prospects don't look good. Avoid.

MITIE

Mitie, the cleaning and security group, has kept on improving its reputation and growing its client base, which now spans such impressive names as the Houses of Parliament and Rolls-Royce. The share price, though, has not responded and they look cheap as a result. Buy.

SANCTUARY

This innovative record company also generates earnings from music DVD publishing, merchandising and advising on tours and live performances for a roster of stars from Marilyn Manson to Jamie Cullum. It has also been adept at spotting the value in ageing acts that may have lost their chart appeal but still have a high-spending and loyal following. And it is the world's biggest reggae record label business. New revenue sources have been tapped from areas such as mobile phone ring tones. Sanctuary is a compact, well-run outfit worth backing. Buy.

MERRYDOWN

The cider company has matured well since being rescued from the brink of bankruptcy six years ago. Almost three-quarters of its sales come from Shloer, the grape juice drink behind the group's renaissance. Nigel Freer, the chief executive who masterminded the recovery, reckons the UK is his oyster, given that even the hardest Shloer drinker consumes just four bottles a year. The shares are worth hanging on to.

HHG

HHG, born out of a demerger from AMP, has a life book which is struggling to lay its hands on enough capital to satisfy the regulator, a fund manager whose brand has been cannibalised over the past few years, and a financial adviser that is being chased by its clients for alleged mis-selling. But the fund management group, Henderson, is profitable, and restructuring to make it even more so. The life business is stabilising, and HHG is surely hoping to eventually offload it. There's unlikely to be a dividend for at least another 18 months. A hold at best.

WINCANTON

Wincanton, the logistics business that was demerged from Uniq, says it is on track to turn itself into a major pan-European player. Full year results showed progress had been made since the transforming acquisition, 18 months ago, of P&O's European logistics business for £150m. It turned the German business from the acquisition from a loss to profit. Elsewhere, parts of Spain and France are problematic and loss-making. The company said it was reviewing these troublesome operations. Given the risks that remain in continental Europe, the shares are not tempting.

FLIGHTSTORE

Flightstore, a specialist digital media group, admits that it has been "disappointing" since floating on Aim in December. It provides digital media for passengers in-flight, with its own proprietary software Since March it evolved the business model from being a specialist serving just airline passengers to a "mainstream supplier and developer of interactive media for people on the move" generally. In the meantime, the company reported a loss of £1.0m for last year on turnover of £274,000. Avoid.

The above are a selection from the daily Investment Columns.

The RBS success story

The current Royal Bank of Scotland is a very impressive achievement, a monster of a deal-machine which has been transformed from a parochial bank to a global player. From the takeover of NatWest to the newly consummated £6bn deal with Charter One in the US, Fred "The Shred" Goodwin, the cost-cutting chief executive, has earned as good a reputation for adding the right businesses as for ripping costs out of the acquired companies.

The purchase of Charter One has gone down well with the City, which has compared the price RBS has paid favourably with other deals in the US. The expectation is that Mr Goodwin will be able to transfer the winning formula he has employed at his other New England bank, Citizens, across to the new company.

Such a purchase has been made possible by the formidable profits being thrown off by the UK operations, with the high street bank at its core. RBS was one of the first to realise competition for customers would be fought over quality of service, and has led the drive to improve service in branches.

Observers believe RBS will be a half-US bank in a few years, and the risk is always that it will be tempted into a "deal too far". There could also be concerns over Mr Goodwin's dictatorial style if anything does go wrong. But the risks look small compared with the rewards Mr Goodwin is reaping for shareholders. Buy.

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