The Week In Review: Dunelm Mills not quite sitting pretty

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The Independent Online

Dunelm Mills isn't a big name in the south, but the news that the family-owned homewares retailer planned to list its shares had private investors in the Midlands very excited.

This week, they got their chance to snap up some stock. Since the shares were priced 10 days ago at 170p, valuing the group at £340m, they have jumped. Given that the Adderley family, who started out selling curtains from a market stall in 1979, still own 70 per cent of the retailer, they are sitting pretty.

Dunelm Mills is the UK's only out-of-town homewares retailer, operating 65 superstores in its Midlands heartland. It expects to open up to eight new stores a year. It operates off very low gross margins, handing savings back to customers, and keeps its costs low by getting suppliers to shoulder the burden of store deliveries.

The shares are cheap - but why is the family getting out? Tight liquidity will probably push the shares up in coming weeks, but long-term investors should stick to shopping in one of its stores. Avoid.

MORGAN CRUCIBLE

Takeover talks collapsed at Morgan Crucible on Monday, sending shares in the maker of ceramics and defence materials tumbling. Still, on a long-term view, the stock is worth holding - although anyone who bought in back in 2003, when it traded as low as 30p, should have taken profits by now. The heavy restructuring of the past three years has left an attractive business with strong technology, focused on growth markets. Hold.

SKYEPHARMA

The shares have almost halved since this column advised investors to steer clear at the start of the year. At present, the City seems to want just one thing; for the company to sell its US-based injectables business. Until the future of the division is clear, SkyePharma looks like an ultra-high-risk investment. Avoid.

CLUFF GOLD

Algy Cluff is a veteran of the exploration sector. Cluff Gold, where he is the chairman, is his latest venture. It is focused on exploration in West Africa, which Cluff rightly believes has huge potential. The group is to bring to production its Angovia project in Ivory Coast and its Kalsaka site in Burkina Faso. Buy.

HITACHI CAPITAL

Hitachi Capital, the finance group, is branching out into the business of providing loans to help people pay for cosmetic surgery. It already offers its "buy now, pay later" finance agreements to 7,000 dental practices in the UK, so providing the same service to plastic surgeons all across the country is relatively easy. At 9.7 times' forward earnings, Hitachi shares are well worth holding on to.

TOPPS TILES

Topps Tiles' finance director Andrew Liggett announced his decision this week to step down from his position at the tiles retailer after 11 years. The 45-year-old will leave in April. By then, a replacement will have been found. Topps, the UK's largest retailer of ceramic tiles, is thought to have at least five more years of growth in this country until the market is saturated. It could then move into Europe. Hold.

NORTHGATE

Northgate Information Solutions is the latest technology company to reveal that talks with potential private equity buyers have fallen through. At present, it trades at a good discount to peers. Meanwhile, Chris Stone, Northgate's chief executive, has turned down high-profile jobs at Misys and iSoft since he took over Northgate, and has now turned away potential private equity interest. That is a sign the company's impressive growth profile remains intact. Buy.

LONMIN

Lonmin, the rump of the late Tiny Rowland's African mining empire, is firing on all cylinders and has posted a solid set of production figures. Platinum output in the year to the end of September reached a record 1,017,000 ounces, ahead of the group's one million-ounce target. But there were a few words of caution from the group's chief executive, Brad Mills; he warned that Lonmin may struggle to contain costs in the year ahead due to rising wages. Buy.

SHEFFIELD UNITED

Investing in football clubs has long been a pastime for those more interested in spending money than making it. Sheffield United's final results show why. The football club may have moved into the promised land of the Premiership, but it has paid a heavy price for it. Full-year losses for the year to 30 June soared to £7.7m from £1.2m as the Blades splashed out on the squad that won promotion. Only for the brave.

BRITISH AMERICAN TOBACCO

British American Tobacco, the world's second biggest cigarette maker, is firing on all cylinders. BAT has reported an 8 per cent rise in nine-month profits to £2.1bn and assured investors that it is on track for a strong finish to 2006. Despite smoking being on the wane in Western Europe - following health warnings and government curbs - the company is still enjoying solid earnings growth thanks to its focus on selling cigarettes in emerging countries. This should continue for a long time to come. Buy.

LOCAL RADIO COMPANY

Richard Wheatley and Alistair Mackenzie turned Jazz FM into a successful brand and then sold it on to Guardian Media Group for £41m, pocketing a small fortune each. They hope to pull off the same trick with the Local Radio Company (LRC). They have already built up a good set of assets as Thursday's listening figures showed. Once the advertising market recovers, it is likely the stock market will start to appreciate LRC's portfolio. This is one to hold

INSTORE

Business is still dire at Instore, the owner of High Street chain Poundstretcher. This week came yet another profit warning from the retail group. It said that losses this year will be a lot bigger than originally expected. This came along side a terrible set of interim results. Operating losses for the first half of the year increased from £4m to £9.7m. Avoid

These recommendations are taken from the daily Investment Column.

m.jivkov@independent.co.uk

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