The Investment Column: Hold on for the wonder of Woolies

Colt Telecom rings up the wrong numbers - No need to cash in just yet at Stanley Leisure
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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 under-performing budget retailer.

The business has been trading well, with profit margins creeping higher thanks to fewer stocking mistakes and the introduction of own-brand lines. The unexciting essentials of retailing - the computer systems, the staff training, the question of how many ranges of insect repellent to stock - these are the things Mr Bish-Jones has been managing well.

He is also getting to grips with the ill-starred venture into out-of-town superstores, the loss-making big Ws, many of which will be chopped in half and sub-let or sold. Although there will be a restructuring charge, it ought not be too painful. Then, he needs to move on to sort out MVC, the entertainment chain.

A rolling programme of store refits has started well, is being speeded up, and ought to help boost profits for a few years yet.

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

Is all this enough to answer the existential question: what is Woolworths for? In the long run, probably not. Its ranges of toys, stationery, pick 'n' mix, homewares and entertainment do not necessarily pass muster against cheaper or more comprehensive ranges elsewhere. The key point to worry a long-term investor is that sales growth has continued to lag behind that of the high street as a whole. You only have to look across the road to Argos, where sales growth has recently been running at 9 per cent, to see Woolies' 1 per cent growth is a little underwhelming.

The shares, up by two-fifths since we said buy 15 months ago, are now fairly valued rather than cheap. Given that the existential question persists, they 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 rings up the wrong numbers

Colt Telecom is so called because it used to be City of London Telecom before it went national and, later, international. Now it has networks in 32 cities across Europe, linked by its own long-distance lines. It offers a range of telecoms services to business customers while also charging other firms to carry calls over its networks.

Unfortunately, that doesn't mean it is making any money. Colt joined in the rush of networking building in the late Nineties and expanded to take advantage as BT's monopoly was dismantled by regulators. But now there are too many such companies chasing too little business and prices are being squeezed. Colt has also been poor at marketing its value-added telecoms services, such as call filtering services on 0800 or premium rate lines.

The company warned earlier this month that trading had worsened, and the three-month loss of £27.3m it posted yesterday was in line with the lower expectations. With no new bad news, the shares shot back up 12 per cent to 42.75p, but they are 63 per cent below where we advised selling in February.

There is renewed debate over whether Colt might run out of money in a couple of years. The company likes to point to its cash cushion of £794m, but it has more than £1bn of bonds coming due. New services and a new sales director to sell them to customers probably won't be enough to close the gap. 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.

No need to cash in just yet at Stanley Leisure

The house doesn't always win, unfortunately for the casinos and gambling operator Stanley Leisure. A few lucky punters at its exclusive Crockfords casino in London cashed in £14m last year, knocking annual profit growth down to 1 per cent.

Not so many favourites won at the races, so Stanley's bookies chain enjoyed an 80 per cent rise in pre-tax profit. This is currently by far the largest part of the group, but it is back in the casinos arm where investors are playing for the highest stakes.

The imminent deregulation of the gaming laws is going to dramatically change the landscape for its 37 provincial casinos, but it is not yet clear what cards Stanley will be dealt. Under the proposals, casinos will be able to advertise and abandon the 24-hour cooling off period for new members, so that is good for business. But 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 on the number of slot machines and their pay-outs. The Government may yet relent to level the field with regional venues, but Stanley has also said that it is willing to enter the big league if necessary.

The shares trade on a multiple of 14 times earnings, and investors should stick with them.