The Investment Column: Still some bargains in the shops

A focused Misys could be one to watch

Christmas 2004 was officially a write-off for most retailers. Shoppers went cold turkey on shopping and Government figures last week showed that the high street endured its worst December since 1961. It is tempting to write off the entire sector as an investment for 2005, too. But don't.

Of the very few Christmas crackers, Monsoon, Body Shop, Dixons and HMV stood out. Elsewhere, WH Smith and Game Group's decision to focus on the bottom, rather than the top, line paid off.

The highest profile loser was Marks & Spencer, which saw its underlying sales plummet 5.6 per cent. Even Next and Argos, part of GUS, disappointed their huge fan clubs, with slower-than-expected growth.

So far, 2005 has already started badly for both Allders and Pilot, an unquoted clothing chain: both have collapsed into administration. With house prices falling, consumer debt rising and no sign that interest rates will fall from 4.75 per cent, the rest of the year looks only set to get trickier.

Consumer belt tightening means this year calls for a change of investment strategy. Stop obsessing with sales and try not to get too bogged down with valuations. It will take greater things to get share prices moving this year. Think corporate action.

Fresh speculation that Marks & Spencer and J Sainsbury could be bid targets meant the general retail sector actually outperformed the FTSE last week, in spite of all the profit warnings. (Our view is that a bid for either is highly unlikely, so neither will make it into this year's portfolio.)

The first of this year's high risk, high reward choices is French Connection. It paid the price for poor autumn ranges with a profit warning and its shares lost half their value. The odds are that either Stephen Marks, its founder and chairman, will sort out the collections in time for summer, or he will take the group private. Either way, the stock, trading now on a forward price/earnings ratio of 10.4 times, looks cheap.

Another candidate for possible predator action is MFI. The kitchen group has a hidden gem in Howdens, its joinery arm, and speculation abounds that at least one part of the company will attract a bid. Meanwhile, at Wyevale Garden Centres, it is the presence of Laxey Partners, a notoriously aggressive investment company, that offers most hope for its shares. If the group can't build on its Christmas sales foundations, its active investor is likely to force it to. Using a similar logic, Matalan is also worth holding.

Less high-risk is GUS. The Argos retail-to-Experian financial services conglomerate is reviewing its strategic options and the smart money is that shareholders will be left holding stock in two separate companies by this time next year. On a forward p/e of 13.4 times there is undoubtedly still hidden value to go for.

Happy shopping.

A focused Misys could be one to watch

Health services will be so much more efficient when patients' medical records are kept on computer rather than stored in great folders stuffed with notes. Misys is one software firm whose products include electronic health records. In the UK, it is just setting up its systems at a big hospital in the north of England. But its focus is the US, where it has won market share. The Federal government wants all records on computer in a decade, up from 15 per cent so far, so the opportunity is vast.

The picture is duller in other areas of the company's business. In particular, the division which supplies software to banks, both in the City and on the high street, continues to struggle. Financial institutions began spending on IT again last year, but it doesn't look as if Misys has been in the vanguard of the recovery. Underlying sales growth in this area in the six months to 30 November was just 2 per cent, but order growth was faster and this ought to feed through in the second half of the financial year.

Profits are still going backwards at Sesame, its network for independent financial advisers. Yet here, too, there is reason for optimism. Changes to the way the industry is regulated are creating a class of IFA selling a limited number of company's products, and Sesame has new systems that can support them in dealing with regulatory compliance. The division will be spun off, or sold entirely or in part, probably this year. That might be a catalyst for improving City sentiment towards the stock, which sits at a too-big discount to the rest of the software sector.

Speculative buy.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there