Betterware no alchemist

The Investment Column

The stock market was convinced Betterware had uncovered the secret of alchemy until about 18 months ago. Shares in the distributor of cheap- `n-cheerful household goods rose inexorably after arriving on the main market in 1990, but a string of profit warnings has seen the shares tumble from a peak of 272p in July 1993 to 43p yesterday, down a further 3.5p.

The rot started with the sale by the controlling Cohen family of 13 per cent of the shares in June 1993, but more serious problems started rolling in after the opening of the group's new £10m Birmingham warehouse in December 1993.

Part of Betterware's army of door-to-door salesmen and women began to desert and could not be replaced, hitting sales, while a lack of understanding of the new systems at Birmingham forced the group to take on expensive extra staff to take over where the machines had failed.

Yesterday's figures show the resulting horrors, with the position made worse by chairman Andrew Cohen's attempts to wrestle with the problems besetting the business.

Turnover has slipped from £63.2m to £58.3m in the 12 months to February, while pre-tax profits have crashed from £14.1m to just £1m.

The difficulties in Birmingham helped lift selling and administration costs by 38 per cent, while there was a £1.65m charge for centralising distribution and management in the European operations. With a £2m write- down on non-core businesses earmarked for disposal or sold, exceptional items came to £5.1m.

Mr Cohen believes they have been prudent and are now through the worst. Although sales in the main UK direct selling business fell 9 per cent to £45m last year, the position has stabilised, he says, and were marginally ahead in the first eight weeks of 1995.

But even if Betterware achieves £8m profits this year, the shares on a prospective price-earnings ratio of eight should be avoided.

The only hope for existing shareholders would be if a bidder mopped up the Cohens' 47.5 per cent stake as a prelude to a takeover.