The Week In Review: Frigid performance as Iceland struggles to keep customers
Saturday 17 July 2004
If only mum would go back to Iceland. The frozen food chain, owned by Big Food Group (BFG), has been suffering as customers desert its frumpy stores.
If only mum would go back to Iceland. The frozen food chain, owned by Big Food Group (BFG), has been suffering as customers desert its frumpy stores. While the management has been focused on turning some of its best sites into bright new convenience stores selling fresh fruit, veg and sandwiches, the older shops are fast going to rack and ruin.
The company has two answers: speed up the refits; and replace the Iceland boss with a new man poached from Asda, with a brief to improve customer service across the 748 stores, not just the 40 refitted ones. But the company also has two problems: speeding up the refits is costly; and bigger competitors such as Tesco are steaming into the convenience market much faster than Iceland is managing. BFG is going to struggle to turn the sales performance around any time soon.
And that is just Iceland. While the City's gaze has been fixed in horror there, the other main business - the cash and carry chain Booker - is starting to look troubled, too.
Its sales to caterers have been particularly poor and the company this week added Euro 2004 to the list of reasons, or excuses, which previously included the weather and the late Easter. Avoid.
No, not that Abbey. This is the Dublin-based housebuilder which built 385 homes in the UK in the past year, and a further 407 in Ireland. Its results have been great, of course, but the most interesting thing about Abbey is how it is responding to the threat of a slowdown. It is investing further afield, and has just bought land with residential planning permission in Prague, the fast-growing capital of new European Union member, the Czech Republic. Hold.
Since Mothercare was carved out of the Storehouse empire when Philip Green bought Bhs in 1999, it has struggled to update its range and suffered competition from supermarkets bringing cheap, fashionable maternity and child wear to their shelves. But Mothercare itself is now getting trendy, launching items such as Ugg-esque boots for girls and gift sets for newborns. Readers who followed our advice to buy the shares in May last year have a bundle of joy in their portfolio, and this is one to nurture. Buy.
The theme bars group Ultimate Leisure is focused in the North-east and Northern Ireland and, rather than rolling out particular brands, it tailors its venues to the locality. Its sites range from beach bars to rodeo-themed venues. It is doing very well despite the tough competition for high street drinkers. Ultimate's business model seeks to buy the freehold to its sites, rather than leasing them, which can be a crippling burden if trading takes a turn for the worse. Hold.
INTER LINK FOODS
The good bakers of Inter Link Foods, the Blackburn-based cakes company, have seen its share price rise like the best sponge. It has just recorded its fifth successive year of record turnover, profits and earnings per share, with acquisitions proving a vital ingredient. With the licence to bake Disney cakes and snacks being extended into new products and characters, there are further gains to come. The shares are still worth snacking on.
Wolseley, the FTSE 100 plumbing and building materials distributor, is one of the UK's great success stories. It has expanded across the globe supplying customers ranging from Boeing and General Electric down to the lowliest local plumber. The diverse nature of the company's products, from pipes to timber, and of the areas it supplies, from house repairs to giant factory projects, mean it can survive a mild economic downturn with barely a wobble. Hold.
The debate over "open access" to academic journals, such as those published by T&F Informa, is hotting up. Some organisations are experimenting with free subscriptions, the cost of publishing instead being shouldered by a fee from the researcher. The threat to profits may not be as great as some in the City fear, but the fact that there is a debate at all reflects years of irritating subscription price rises. These are at an end. Hold.
PD Ports runs the ports of Tees and Hartlepool, where it is hoping to lure container ships and Scandinavian cruise ships to dock. It also plans to build 3,400 homes on its land around Hartlepool docks. The shares ought to have been priced at a big discount to stock market stalwarts such as Forth Ports to reflect the earlier stage of the expansion strategy. PD's convertible bonds, which yield a 6p coupon, look more attractive than the riskier shares yielding 4 per cent.
QXL Ricardo, the UK copy of eBay, was launched with great fanfare in the Nineties and almost immediately squashed by its US inspiration and rival. But it is still around, and posted its latest quarterly losses yesterday. While eBay dominates internet auctioneering across the globe, QXL has been forced into local niches. The company can barely afford to market itself, let alone develop new revenue streams that might turn it into a decent investment proposition. Avoid.
Visitors are so happy with the experience they get at Center Parcs that nearly 60 per cent come back each year for more of its family-based, sports and leisure holiday villages. Investors' experience since flotation in December has been much less happy, but financial results should keep improving. Center Parcs is adding extra services such as spas and better restaurants, persuading guests to increase their spending. The shares are worth backing.
BetonSports (BoS) allows its customers to, er, bet on sports. The online gaming and gambling site, based offshore in the Caribbean, took $1.2bn of bets last year, making it already one of the US's largest such sites. In the US, bookies are illegal in many states, and offshore, online sites are the only way to reach punters nationwide. Online sports betting is growing at 20 per cent a year. Buy.
Don't bank on Abbey
There have been so many clouds hanging over Abbey National, Britain's sixth largest bank, that the evaporation of one this week - the question of the solvency of its life insurance businesses - does not guarantee a sunny future.
Rising interest rates, the poor competitive position of Abbey's mortgages and other products, and concern over the sustainability of the dividend - all are storms threatening.
We are 17 months into the three-year recovery plan set out by Abbey's chief executive, Luqman Arnold, and there are still few tangible signs that he can turn this business round. The extrication of the business from its disastrous foray into wholesale banking has been handled well, but it turns out to have been the least of the challenges.
Increasing competition in the mortgage and personal lending markets is squeezing its margins, seemingly offsetting any savings that Abbey is making from its business review. Meanwhile, creeping interest rates are eroding the difference between the prices at which Abbey borrows money and lends it out to homebuyers.
Takeover rumours have sent the shares up almost a fifth since their low in April, and the company looks absurdly over-valued compared with its more stable, better-positioned peers. The Competition Commission's decision to disallow a Lloyds TSB bid three years ago leaves Abbey off limits to the most obvious bidders, its UK competitors.
At the current share price, the numbers simply don't stack up for a foreign company that won't benefit from the cost-savings of a merger. Sell.
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