The Week In Review: It's worth holding on to Woolworths for a while longer

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The Independent Online

Trevor Bish-Jones has won a warm reception in the City for his stewardship of Woolworths, the chronically underperforming chain of budget shops.

Trevor Bish-Jones has won a warm reception in the City for his stewardship of Woolworths, the chronically underperforming chain of budget shops. The unexciting essentials of retailing -- computer systems, staff training, how many ranges of insect repellent to stock -- these are the things Mr Bish-Jones has been managing well.

A programme of store refits is being speeded up, and ought to help boost profits. And he is also getting to grips with the ill-starred move into out-of-town superstores, many of which will be chopped in half and sub-let or sold. Then, he needs to move on to sort out MVC, the entertainment chain.

The entertainment wholesale business has improved, too. A tie-up with BBC Worldwide should boost opportunities, and make up for any disappointment when the deal to supply CDs and DVDs to Tesco is renegotiated.

Will this answer the question: what is Woolworths for? In the long-run, probably not. Its toys, stationery, pick 'n' mix, homewares and entertainment do not pass muster against cheaper or more comprehensive ranges elsewhere.

As a result, the shares are not for long-term investors. But they are worth holding for a spell longer, while Mr Bish-Jones works his low-key magic.

COLT TELECOM

Colt Telecom joined in the rush of network building in the late Nineties and expanded to take advantage as BT's monopoly was dismantled by regulators. Now there are too many companies chasing too little business and prices are being squeezed. Fidelity, the private US investor, owns 56 per cent and won't let Colt go to the wall, but there is no sign either of a willingness to do a corporate deal to dramatically alter the outlook. Avoid.

MISYS

Misys has seen its fortunes wane along with the industries that its software products serve, most notably the banking and securities sector that has been shedding jobs for the past three years. But some leading analysts saw this week's results as the first clear sign of a turning point in the troubled technology company's fortunes. Now probably is a good time to buy the shares - but only with cash earmarked for high-risk, speculative investments.

STANLEY LEISURE

The imminent deregulation of the gaming laws is going to dramatically change the landscape for Stanley Leisure's 37 provincial casinos. New Las-Vegas-style regional casinos with unlimited-jackpot slot machines are also on the way, while for smaller casinos like Stanley's, restrictions remain. But casinos will be able to advertise and abandon the 24-hour cooling off period for new members, so that is good for business. Investors should stick with Stanley.

INTERMEDIATE CAPITAL

Intermediate Capital, the specialist provider of finance for buyouts, sold its minority stake in Pets at Home, the animal food and toy retailer, at a healthy profit this week. The news provided yet more evidence of its nose for a deal and good timing, but the worry is whether it can continue to find good deals in an increasingly shaky market. For those who have enjoyed the shares' ride to the top, now may be the time to take profits.

UNIVERSAL SALVAGE

Universal Salvage sells wrecked cars, and poor trading has wrecked the share price in the past couple of years. A mild winter has not helped matters, reducing the number of crashes. But the main problem has been new European Union rules for extracting commercially useful parts from car wrecks, scaring off Universal's normal customer base. Management has much sorting out to do, but shares may be worth a punt with money you can afford to lose.

ARM HOLDINGS

Investors are obsessing about a possible slowdown in the chip sector and have disregarded ARM's protests that it operates in a faster-growing part of the industry and that it is confident enough to invest in more research, more product development and more staff. ARM's technology is ubiquitous in phones and other mobile devices, and this will win out for shareholders. Use the coming weakness as an opportunity to pick up the shares, stash them away, and try not to worry.

WH IRELAND

The Manchester-based stockbroker says that institutional investors are taking a break after a glut of new issues and private clients are holding fire while worries over economic growth persist, but both have the cash to invest when the City gets back to work in the autumn. That confidence is one reason to buy WH Ireland shares. Another is the company's growing reputation as a corporate financier. A third is its determination to generate greater interest in the shares.

BOOTS

This week's trading update was something of a soft test for Richard Baker's turnaround strategy at Boots, for it concentrated conveniently on sales and left to one side the problems of costs, margins and profits. Although Mr Baker warned in March that profits for the year would be down thanks to redundancies and spending on refurbishment, the market was still spooked by news that trading will be disrupted by "intense activity" to prepare the stores for Christmas. In truth, the nasties weren't too nasty and the goodies were quite good - shares look a worthwhile hold

RENISHAW

Artificial joints, car manufacturing and laser surgery are all precise businesses, and Renishaw, which makes specialist measuring equipment to service these industries, charges a healthy margin for its products. The manufacturing sector has had a tough time in the past few years, and Renishaw has suffered from a fall-off in orders, but a recovery now seems to be on the way. Hold.

CATTLES

This consumer credit company continues to expand in line with the UK consumer's taste for borrowed money, but how secure is this growth story now that interest rates are rising substantially? Bad debts have so far kept steady, but could well rise. And demand for extra credit might go into reverse if the nation dons a hair shirt. The stock shouldn't be sold while the going is good, but you'd have to be a brave investor to get involved in the current market.

Rock falls as costs rise

There comes a time in the life of every stock-market darling when that honeymoon period of being able to do no wrong in the eyes of City investors comes to an end. There are signs that that time has come for Northern Rock, the super- efficient mortgage lender based in Newcastle.

The Geordie bank's interim results this week did not wow the market, and were seen by some as a definitive sign the mortgage market is cooling down as customers struggle with higher interest rates.

Already operating on the basis of taking a wafer-thin cut on loans, Northern Rock's profit margins have been squeezed even further in recent months. That is because the cost of raising funds in the money markets has risen more steeply than the actual rise in the base rate, making it very difficult for lenders to pass on extra costs to customers.

Northern Rock has shown that it is able to cut costs still further while continuing to punch above its weight in the competition for mortgage customers. Compared with its 5 per cent share of existing mortgages, it is snatching 8.4 per cent of new loans, and said this week that its list of business yet to be signed and sealed was a record £6.4 billion.

Northern Rock's shares are not as expensive as they were when we first advised investors to sell earlier this year, but there seems little likelihood that, while investors remain concerned the housing market could blow up in everyone's faces, the bank's shares will pick up speed. Long-term investors should take their profits at this point.

The above is a selection from the daily Investment Column

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