Better days for Betterware: The Investment Column

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Betterware was one of those go-go shares that looked worryingly insubstantial when things started to go wrong a couple of years ago. Dependent on armies of part-time door-to- door salesmen, when recruitment stumbled, sales fell and profits came tumbling after.

Six months ago Betterware began to show signs of having turned the corner and yesterday's final figures for the year to March confirmed the rehabilitation of a company whose share price rose tenfold in the two years between 1991 and 1993 but lost 80 per cent of that peak value in the following 18 months.

Profits were distorted by a pounds 3.5m exceptional charge in the year to March 1995 and a pounds 1.1m credit this time, so the rise from pounds 3.3m to pounds 10.2m was flattering. At the underlying level, however, stripping out one-offs and ignoring the losses from discontinued businesses, the core direct selling operation saw a healthy rise in profits from pounds 5.6m to pounds 9.6m.

That, and especially Betterware's impressive cash flow meant a one-off 2.6p special dividend was added to an unchanged 2.6p payout to use up some of the company's pounds 10m cash pile.

The good news is that the momentum of the past year has continued in the first quarter of the current year. A redesign of the catalogue, new products and better trained staff are all paying off and the few brokers who follow Betterware were yesterday nudging up their forecasts to about pounds 10.5m for the current year.

On that basis earnings per share of around 6.7p would put the shares on a prospective price-earnings ratio of 15 at yesterday's 98.5p, up 6.5p. That compares favourably with the forecast growth rate, but after the gyrations of recent years, and the risks inherent in planned moves overseas, so it should. High enough.