The Week In Review: Carpetright unlikely to pull the rug out from under you yet

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The Independent Online

Carpetright produced a strong set of full-year results. A new focus on opening smaller stores in smaller towns will help to quickly increase its profile and profitability, it says.

Carpetright produced a strong set of full-year results. A new focus on opening smaller stores in smaller towns will help to quickly increase its profile and profitability, it says.

Certainly, the few smaller outlets which it has opened so far have rapidly begun to bring in profits. The group also has plans to seek out new department store partners after the success of its tie-up with Allders. Lord Harris, the chairman, reckons the group will have as many as 100 of these new outlets in three years' time.

The big worry, of course, remains whether consumer spending is set to abate. But the management remains confident. Although the company's product mix has evolved to include more higher-priced carpets, it still has an average customer spend of just £98. That means that its carpets are relatively low-ticket items - unlike, say, buying a new sofa - and the company believes it will need another percentage point rise in interest rates before it sees any kind of effect on demand.

While the share price may not be able to repeat the 70 per cent growth seen over the past year, the rug does not look as though it will be pulled from under investors' feet just yet. A buy for those who can afford to take a medium-term view.

SOMERFIELD

Somerfield, often seen as the peripheral weakling of the supermarket chains, is proving it can hold its own in the dog-eat-dog world of grocery retailing. With more central locations than some of its edge-of-town rivals, Somerfield, which also owns the Kwik Save chain, has embarked on a major refit programme to draw in customers. Sales per square foot are £10 and £14 in refitted Kwik Save and Somerfield stores respectively, compared to £7 and £10 in the old stores. Although others have more dominant positions than Somerfield, the company is demonstrating solid results. Hold.

CELTIC RESOURCES

Celtic Resources' managing director, Kevin Foo, points out that four years ago, the mining company had a stock market value of £300,000. Today, it is worth nearly £150m and its main asset, a 50 per cent interest in the giant Nezhdaninskoye gold mine in Siberia, has remained the same in that period. The company is on the cusp of pulling off a deal that will give it 100 per cent ownership of Nezhdaninskoye, one of the biggest gold mines in Russia, and production should start again at this previously abandoned asset. Buy.

PARKDEAN HOLIDAYS

Parkdean Holidays, the caravan park operator, insists that the attractions of the great British outdoors have never gone out of fashion. The company is in expansion mode, with £25m to spend on acquisitions, and bookings are up 5 per cent on 2003. There was some concern over the revelation that Parkdean still has some peak period capacity to sell but Mr Wilson says that this is deliberate, with the company having sold out too quickly last year. Backed by ownership of land or long leases, the shares are a solid hold.

PALANDRI

Wine consumption is on the up, certainly in the UK, where the Australian wine producer Palandri saw its shares debut on Aim this week. The company's wines sell in the £4.99 to £8.99 range, which is not at the real premium end of the market but is still well above the average selling price. As consumers are willing to spend more on a bottle of wine, producers such as Palandri will get more business. For the first time this year, the company will sell more than half its produce overseas. The shares are an attractive prospect for those attracted to the Australian wine success story.

JOHN LAING

John Laing accompanied a positive trading update with news that it has formed a joint venture with Commonwealth Bank of Australia, partly to tap an emerging Continental market - in the roads sector, as well as hospitals in the UK and abroad. The company, which has ditched its traditional construction and housebuilding arms over the last three years, now lays claim to being the leading PFI player. It has 37 projects on the go. Laing's specialist expertise should mean that risks are well managed. Buy.

PHOTO-ME`

Photo-Me said it had reached a "turning point", having returned to profit and resumed dividend payments with the full-year results. The photo-booth company, which rode the internet wave, now depends on the exciting world of digital photography. If you are not put off by the hype that surrounded this business in its internet days and by the large-scale share sales by directors in the last few months, this could be a good time to buy.

GREENE KING

Greene King delivered strong results, thanks to the good weather last year. Greene operates three businesses - brewing beer such as Old Speckled Hen, managing pubs in-house, and leasing out pubs to tenants who pay rent and buy beer from the company. All three divisions are performing well, with profits for the year at the group up 10 per cent to £74m. The beer market is in general decline in the UK, but Greene is taking further market share. Hold.

HONEYCOMBE LEISURE

Trading has been difficult over the past year for Honeycombe Leisure, and the company said underlying pre-tax profits had been flat at £1.8m after stagnant like-for-like sales. This is a steady performance, however, given the dire straits of some managed pubs operators. But Honeycombe, which focuses on local, community pubs, has been finding other ways to grow. Instead of battling to buy new sites, it has signed contracts to manage pubs on behalf of others. Buy as a long-term sweetener.

TEATHER & GREENWOOD

Teather & Greenwood has come a long way since the bear market when the broker for small and medium-sized companies was hit hard by plunging stock markets and an absence of desire by its clients to do deals. Teather returned to the black this week and turnover was up 36 per cent. A sound bet for catching the possible upside. Hold.

US boosts homebuilder

The City, remembering what happened in the 1990 property crash, is very nervous about the housebuilding sector. Like Persimmon earlier in the week, George Wimpey Plc stressed - in the words of Peter Johnson, the chief executive - that "the medicine is working". That is, the four interest rate rises since November have had the desired effect of slowing down the runaway rate of house price inflation.

Mr Johnson points out that, unlike in 1990, there is not a high stock of finished product ready to come on to the market - in fact it is currently under-supplied.

A trading statement reported that, in the first half, Wimpey saw prices rises of 11 per cent, with the company seeing no more than a further 5 per cent increase in the second half.

It seems to be a fact that new homes have seen far less selling-price inflation than the figure for all houses, which is running at some 20 per cent. Housebuilders say that this means their product provides good value.

Nevertheless, Wimpey has reduced exposure to the higher price points at its upmarket Laing Homes division. The company said that in the £300,000-plus bracket in the South-east, and the over-£250,000 in the Midlands, prices have been stagnant "for some months".

Unlike other sector players, Wimpey offers exposure to the US, and here the market is moving ahead very strongly in the southern states where the company's Morrison Homes arm is active. While sales volumes will be flat in the UK in 2004, first-half volumes were already 12 per cent ahead in the US, with a "much larger" increase expected in the second half.

So, with the US providing the growth engine, and signs that the UK is going to have a soft landing, Wimpey is trading on a derisory forward multiple of less than 5.

Buy.

The above is a selection from the daily Investment Column

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