The Week In Review: M&S recovery still on track

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The Independent Online

Marks & Spencer is a totally different beast to the basket case that chief executive Stuart Rose first got his hands on two-and-a-half years ago. Mr Rose has sold the group's financial services business, reshaped the clothing division for the better, stripped costs out across the group, and restored the quality of M&S's food products .

At its latest set of interim results, earlier this month, pre-tax profits were up 31 per cent to £405m, driven by strong like-for-like sales growth across the board - in spite of increasingly difficult trading conditions on Britain's high streets. This puts the group close to annual profits of £1bn for the first time since its late-1990s heyday.

The retailer celebrated the news by unveiling its first major expansion project since the late 1990s, pledging to increase its store space across the UK by some 20 per cent over the next five years. And this week, the company announced specific plans to plough £35m into expansion and refurbishment in Northern Ireland, a move that will increase its workforce in the region by more than 10 per cent.

When we last looked at M&S, more than two years ago, the shares were languishing at around 350p. By the close yesterday, they were close to twice that. Investors who have been along for the ride should lock in some profits, ahead of what could be a bumpy time ahead. But M&S looks in good shape. If its £4bn property portfolio is excluded, its valuation is not demanding either. If you don't own any M&S stock, there is still time to get some. Buy.

DOMESTIC & GENERAL

Little-known insurer Domestic & General makes 90 per cent of its revenues selling extended warranties on electrical goods to UK consumers. Although there's a cyclicality to the business - growth inevitably slows when consumer spending contracts - Britain's appetite for new electrical goods ensures D&G's potential customer base is always on the up.

This week's interim results were impressive, with profits up 5.6 per cent on the back of a 12 per cent increase in sales. Trading at about 15.5 times this year's forecast earnings, the stock does not look overpriced. Buy.

DOMINO'S PIZZA

Domino's Pizza continues to deliver in the expanding fast-food sector. The UK's largest home-delivery pizza chain's latest offering is £10m via a buyback of 1.8 million shares at 555p each. Last week, Ofcom set out new regulations for the advertising of foods that are high in fat, salt and sugar to children, banning the use of celebrities and popular cartoon characters.

Fortunately, the group's high-profile, long-running campaign featuring The Simpsons is no longer a significant part of the total marketing budget, and though its sponsorship of the cartoon on Sky1 will cease, its licensing deal will continue. Buy.

PARAGON

Paragon, the lender to landlords, could not have picked a worse day to report its full-year results. On their way into work on Wednesday, City investors read the gloomy prognosis on house prices from the Morgan Stanley economics guru David Miles. When they arrived, they saw a depressing trading statement from another lender, Kensington.

However, Paragon is in far better shape than many of its rivals. The shares trade at 12.6 times forward earnings, and yield a prospective 3 per cent. Given the growth the company has been showing, that is not overly expensive. Despite the housing market concerns, the shares are worth holding.

FISHWORKS

Making money from fish restaurants is not an easy business. The collapse of Tony Allan's Fish! a few years ago showed this, and FishWorks has once again reminded investors of this fact. It has issued a profits warning, telling the City to expect profits of just £750,000 in 2007, a 65 per cent reduction on its previous forecast. Avoid.

EROS INTERNATIONAL

Eros International, the Indian distributor of Bollywood films in the West, has posted an outstanding set of maiden results. First-half profits at the AIM-listed group doubled to £4.6m, while revenues jumped 48 per cent to £11m as it moved into the movie-making business for the first time in its 30-year history. Eros shares, listed in July at 176p, have risen by 50 per cent since. Yet the stock still trades at only 15 times forecast earnings for the year to March 2007. For a company with Eros's growth potential, this is too low.

EXPERIAN

The credit expert Experian's first set of results since its demerger from GUS met analysts' expectations and sent its shares up more than 3 per cent. Next month, it will become one of the newest recruits to the FTSE 100, but it remains a business that few investors yet know much about. As a well diversified company with strong management - which intends to pursue acquisitive as well as organic growth, but has shown it has enough discipline to not overpay - Experian is a low risk. Buy.

UNIQ

The news from Uniq over the past few weeks has been the most encouraging in years. The convenience- food-maker has raised £280m from disposals, the company's pension-fund deficit has gone from £85m to just £22m, and its debt burden has disappeared (it can now boast a net cash balance of more than £70m). Even so, a full recovery is far from guaranteed, and given Uniq's £220m market valuation, shares are probably best avoided at current levels.

CHRISTIAN SALVESEN

Christian Salvesen has been in recovery mode for a few years now. The problem is that there is little evidence of a sustainable upturn at the haulage group, which this week issued a profit warning. Although it is on track to deliver first- half revenue growth of 7 per cent, it will not be able to achieve a lift of similar magnitude in the second half. There's better value elsewhere in the market.

HUTCHISON CHINA MEDITECH

Can traditional Chinese herbal medicines cure diseases such as cancer? Hutchison China MediTech (Chi-Med) believes that it can. The group this week unveiled an anti-cancer deal with the German drugs giant Merck. If the two manage to bring a cancer treatment onto Western markets, it will send the AIM-listed group's share price into orbit. The stock is worth tucking away.

HR OWEN

Nicholas Lancaster, chief executive of HR Owen, has abandoned plans to take the luxury car dealer private. But while the group will remain a publicly listed company, it is clear Lancaster will continue to run it as if it were his own fiefdom. Readers would do well to avoid the stock.

The above recommendations are taken from the daily Investment column

SSL International seeks to expand into Asian market

SSL International, the maker of Durex condoms and Scholls footcare products, is on the lookout for acquisitions in Europe and Asia. The latter seems to be a particularly attractive region for SSL to invest in, given its abundance of 18-to 30-year-olds, the age group most likely to buy one of its condoms.

The company is in the process of taking full control of its joint venture in China. Further deals in the country are a distinct possibility. India is also on the SSL acquisition hit list.

Nevertheless, Europe looks set to remain its key market for some time to come. At the last count SSL generated 74 per cent of its sales from the Continent. It is among Europe's older generation that Durex is most popular.

Although SSL shares trade at a hefty 17 times forward earnings, the prospect of expansion in Asia, and the possibility of a bid for the company, makes them now worth holding.

m.jivkov@independent.co.uk

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