The Investment Column: Park at Halfords for more growth

Still room for a gamble at sturdy Arena Leisure - Bag yourself the latest offering from Mulberry
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The Independent Online

Halfords started life as a local hardware store in Birmingham in 1892, adopting its current name in 1965 and growing into a national car accessories and cycles retailer that now operates out of 397 stores.

Halfords started life as a local hardware store in Birmingham in 1892, adopting its current name in 1965 and growing into a national car accessories and cycles retailer that now operates out of 397 stores.

It claims to have been among the pioneers of the Eighties trend for retailers to move away from the high street to out-of-town warehouses. This decade, it is among the chains introducing mezzanine floors in those warehouses, adding anything up to an extra 33 per cent of selling space.

It is this growth of selling space and the continued roll-out of stores that ought to keep Halfords growing throughout any consumer downturn. You wouldn't want to be buying shares indiscriminately in the retail sector as consumers start to focus on paying back some of their credit card balances. But most City analysts who follow Halfords have a buy recommendation on its stock. We tipped Halfords last June as one of the best of the flotations of the first half of 2004. Its shares showed a gain of more than 25 per cent at their peak in February, but disappointing retail sales figures have taken the shine off the sector as a whole and the stock has fallen sharply. Yesterday's trading update prompted analysts to downgrade their predictions for sales and profits in the financial year just ended and 2006.

But the growth was still impressive. Like-for-like sales in the 52 weeks to 1 April rose 8.2 per cent, not including new mezzanine floors. All sales categories - car maintenance (including wing mirrors), car enhancement (alloy wheels and furry dice), travel solutions (satellite navigation systems) and cycles - grew.

The case for hanging on to Halfords shares is twofold. The stock appears to trade at a lower valuation than the rest of the retail sector, despite the likelihood that it can withstand a consumer slowdown more easily than most - car maintenance at least will always have to be done. And the uplift from new space ought to drive profits even if underlying sales growth cannot.

Still room for a gamble at sturdy Arena Leisure

For most of the past few years you would have got shorter odds on a Grand National outsider than on the prospect of Arena Leisure making money for its shareholders. Arena is the owner of six of the country's busiest racecourses, accounting for 25 per cent of all UK fixtures. But its results have been bathed in red since its foray into interactive TV, the ill-fated venture with BSkyB, attheraces.

Note "attheraces". The business has been slimmed down and slightly renamed At The Races. The digital channel no longer carries an overwhelming majority of fixtures, more like half now, but it is also no longer paying over the odds for broadcasting rights to course owners. It promises to break even in 2006, through increased advertising revenues and a cut of betting done by pressing the "red button" - no longer an unrealistic promise.

Meanwhile, the core business enjoys lots of opportunities for growth. The six courses don't include the really sexy ones such as Aintree, but Lingfield Park and Royal Windsor are decent bankers. Investment in new facilities at Lingfield Park and new all-weather surfaces at Wolverhampton and Southwell are part of Arena's strategy of turning its courses into all-year leisure and hospitality destinations. A more permissive attitude to gambling ought to open up further opportunities for casinos.

With regulators such as the Office of Fair Trading demanding more professionalism in racing, Arena is well-positioned for the long-term. Its shares, at 43p, are still a gamble, but they are an odds-on favourite.

Bag yourself the latest offering from Mulberry

No self-respecting fashionista has to think twice about whether to bag the latest leather offering from Mulberry. Must-have "Roxannes" in coconut matt glove (that's a big white handbag to you and me) have been flying off the shelves so fast this spring that yesterday the company crowed that sales had overshot expectations. Sales in the 11 weeks to 2 April are up 50 per cent.

For years, Mulberry shares were off the radar while the company grappled with the conflicting interests of its founder-chairman, Roger Saul, and its majority shareholders, the billionaire Ongs, who also own such trendy hotels as the Halkin in Belgravia. And then there was the small matter of eight years of losses.

Enter Kevin Stanford, the man who offloaded his Karen Millen retail empire to Baugur last year, and suddenly the picture looks as different as next season's catwalks. Mulberry shares have tripled since May, to 119p, as Mr Stanford has upped his stake to 25 per cent.

The downside is that with the Ongs owning 52 per cent and Godfrey Davis, the chairman, another 4, that leaves slim pickings for new investors, which is why the stock has been squeezed so high. On fundamentals, the shares look as pricey as a "Chocolate Darwin Bayswater" (a big brown bag), but given how fast the business is growing, consider them a fashion statement. Buy.