The Investment Column: Put Kesa on hold until the picture is clearer

Virtuous Numis can look forward to growth; Stream banking on mobile accounts
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The Independent Online

Kesa Electricals may be most famous to the UK consumer as the owner of the Comet chain, but it is hardly blazing a trail through the dark skies of the UK retail industry at the moment.

Fewer house moves and weaker consumer confidence means sales of white goods - washing machines, cookers, fridges and the like - are proving very disappointing. Strong sales of flat screen TVs and digital gadgets cannot make up for this, and Comet's sales were down more than 2 per cent in the six months to 31 July, or 5 per cent if new store openings are excluded. The chain has plunged into the red. The hope is that a rebranding can push Comet a bit upmarket, differentiating itself by the specialist knowledge of its sales staff, but it is consumer confidence that will be the key determinant of sales success in the medium term.

In France, where conditions are also weak, Kesa's better respected Darty chain is performing robustly, with sales growth of 6 per cent, although the costs of pushing the Darty brand into Italy trimmed profits. This is a brand with serious potential for expansion in Europe, and a good reason for long-term investors to keep hold of the Kesa shares they own. The French furniture chain BUT, where poor trading had been a drag on group profits, has stabilised, too. There is some hope that a budget package aimed at stimulating French consumer spending could help next year.

Kesa signalled its confidence in the future with a 7 per cent hike to the half-year dividend, and the shares have a likely yield of 4.5 per cent. That looks perfectly sustainable, although the current year's £100m capital investment programme may not be repeatable. The company will reassess its plans in the new year.

Yesterday's first-half figures were no worse than feared, but remember that more than five times as much profit is expected from the second half, which includes the Christmas trading period. Kesa said sales trends had continued in the first few weeks of its third quarter but it is still too early to judge the outlook for the full year.

In the short term, this is a share in limbo, with the business too unpredictable to make it a sell, but certainly not cheap enough to trigger a buy. We said investors should avoid it when the price was 299p in March. Now, hold.

Virtuous Numis can look forward to growth

When we tipped Numis, the fast-growing investment bank, back in May, we did not reckon on getting a 50 per cent return within four months. Should we yield to the temptation to cash in?

On the evidence of the latest trading statement, which sent the stock up 8.5p to 277.5p yesterday, no.

"Following an exceptional period of activity amongst its corporate clients, Numis now expects to exceed current brokers' forecasts for the year ended 30 September," it said. Revenues will be up more than 90 per cent on last year, thanks to the merger and acquisition boom and Numis's involvement in a string of flotations. It worked on a $500m acquisition for the medical devices group Gyrus; defended Urbium after a bid from rival nightclubs group Regent Inns; and ran the flotation of Empire Online that valued the gaming group at £512m. In total, Numis has raised more than £1bn for its corporate clients, three times as much as last year, and the number of those clients has risen to 91 from 73.

Numis is chaired by one of the City's highest profile and most ambitious characters, Michael Spencer, who also chairs Icap. Most impressive is the speed with which Numis has been bulked up after hiring many of the talented bankers displaced by the dot.com downturn. Competition in its niche, focusing on small and mid-cap companies, is always cut-throat, and the imminent acquisition of Baird Securities by Bridgewell might form a significant new threat, but Numis is now big enough and strong enough to enjoy a virtuous circle of growth.

Unexpectedly flush, with £55m in the bank, the shares will go higher still. Buy.

Stream banking on mobile accounts

Will people pay money to check their bank balances and order statements using their mobile phones? If yes, then the technology company Stream Group could be on to a winner. If the answer is "not really", its future strategy will be holed.

Stream has an agreement to supply the kit to make mobile banking work, basically processing customers' requests and providing encryption. It will take a small slice of the revenue generated by each request, which could be significant if the idea takes off.

The agreement Stream has is with mobileATM, a joint venture owned by Morse, another technology group, and Link, which operates the main UK cash machine network. Stream spent £1.5m buying MChex in January, which has the relevant technology to make mobileATM work.

Stream announced yesterday that operating the technology was costing it £400,000 more than expected and that the launch of mobileATM had been delayed until the year end. This, and a fall in interim profits, sent Stream shares down 8 per cent to 48.75p.

The dash for mobile banking has been prompted by a decline in Stream's original core business of supplying ringtones. Consumers now want to hear real music tracks when their mobiles ring, a market dominated by the likes of EMI, not Stream. Having tipped the shares at 38.5p we are still sitting on a 27 per cent profit. That's well worth banking. Sell.

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