The Investment Column: The season is unlikely to be merry at Clinton Cards after latest deal

Watch this space, Lok'nStore looks to have plenty of room for growth; Informa could be worth a place in the portfolio
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The Independent Online

No...

The card shops chain is having a tough time of it at the moment, blaming the lower number of shoppers out on the high street for accelerating sales declines at its main chain. It hopes that, come Christmas, we will all have paid back enough debt to feel able to splurge once more. And if there are more shoppers out on the high street, Clinton hopes to tempt them in with gift ranges such as "tabletop sudoku", Yoda soft toys and those much-hyped Little Britain dolls. But with almost two-thirds of Clinton's sales from cards, with supermarkets increasingly encroaching on this territory, it seems hard to believe the incomprehensible Ms Pollard will help.

But yeh...

The imminent arrival of Ms Pollard et al does at least show that Don Lewin, chairman, and his son, Clinton, the baby the chain was named after and now its managing director, keep a trader's eye on what will sell well. Their expertise, particularly now in the ailing Birthdays chain which Clinton Cards bought last year, could mean they avoid the retail sector rout this Christmas. Even modest sales improvements feed through to big profit gains in a business that has high fixed costs and makes the bulk of its profits in December.

But no ...

The Birthdays acquisition now looks gravely miscalculated. Break-even in the chain has been pushed out by a year to January 2007, which could spell trouble for a group which is operating with such high debts. Group losses were £17.6m in the six months to 31 July this year, with the businesses even failing to cover their cost of sales. The Birthdays turnaround has been dogged by IT problems and delays to the introduction of new buying teams. The group came close to the top of its £110m overdraft when it was ordering stock for Christmas and will almost certainly have to make sacrifices to cut the debt, as agreed, to £60m within five years. Whether the sacrifices are in store refurbishments or in the dividend (which would represent a 5.5 per cent yield if it can be held after Christmas), the shares would surely tumble.

We said sell at 73p in July and reiterate that advice.

Watch this space, Lok'nStore looks to have plenty of room for growth

Too much clutter? If your house or your office is overflowing, you might be looking for one of those garish warehouses that are springing up all over, and particularly in the South-east.

Lok'nStore, with 21 sites, is one of the top five players in this nascent industry, which is dominated by Big Yellow and Safestore. But there is much more growth to come, and Lok'nStore is undergoing a step change. It started out with relatively small warehouses, many of which it leased rather than owned. Its current average site is 40,000 sq ft, but two new openings - at Farnborough and Crayford, Kent - are each over 60,000 sq ft. The company is being run at about break-even, with profits from mature sites funding start-ups and new site acquisitions, so it is growing fast.

The number of people moving house does not appear to significantly affect the level of demand for storage. The more significant risk is that Crayford or Farnborough takes longer to fill than management is planning, but the company's track record is good.

Some speculators think Lok'nStore would be worth more if it tore down the warehouses and built flats. It is doing just that in Kingston and has plans for a rejig at its Reading site too, but this won't be appropriate all over. More likely, the business will fall prey to a bigger player, either from the UK or from the US, where self-storage is a much more established industry.

At 146.5p, buy.

Informa could be worth a place in the portfolio

We are in need of a new member of The Independent's portfolio of tips for 2005, after Cornwell Management Consultants fell through our stop-loss last week. We have just two months left to recover our losses on Cornwell but have resisted the temptation to punt on any of the takeover candidates that were pumped higher in yesterday's frenzy of mergers and acquisitions speculation.

Not that Informa would be an unattractive candidate for a global publishing giant. But it is valued at such a level and with such a promising outlook that we are confident of a re-rating of the shares.

Informa was formed 18 months ago through the merger of business-to-business publisher Informa and science journals business Taylor & Francis, and this summer it completed the acquisition of conferences group IIR, whose increasingly popular events include conferences on how to improve corporate efficiency.

Growth by acquisition is probably at a pause now, but there is plenty of organic growth predicted for next year, when underlying earnings are expected to jump by around a quarter. The conferences market is booming for much the same reason that the M&A market is strong, namely that business confidence is high and strategies are being reviewed in the light of strong corporate cashflows.

Meanwhile, there are savings to be made from the IIR acquisition and cross-fertilisation of ideas across the brands acquired by this impressive company over the past few years.

At 374.25p, buy.

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