Blue Chip: There's life after Archie

Despite its touchy-feely slogans, Asda wears a sensible suit that will fit for a long time yet

Asda, the foods and clothes supermarket group, exudes a brash, American quality. Its report and accounts are packed with slogans and a bland Asda-speak that defines the company ethos. In some ways, it resembles the apotheosis of American feel-good management techniques at their worst.

Phrases such as "Continuous renewal", "Colleague developments", (a reference to its staff), "Recovery to Breakout", all with a liberal use of capital letters, pepper the document.

Indeed, this year is the second in the three-year Project Breakout - the group's plan to continue the good work achieved under "Recovery and renewal".

Much of the blame for Asda-speak must be laid at the feet of Archie Norman, who dragged it from the brink of bankruptcy in 1992, and restored its fortunes.

The American style is no coincidence - Mr Norman was the youngest-ever partner of McKinsey's, the US management consultants. After being finance director at Kingfisher, he joined Asda at the nadir of its fortunes.

Under his guidance, Asda has taken its place at the top table. Project Breakout is Asda's plan to ensure that it stays there.

However, it will be doing so with a much reduced input from its talismanic chief executive, who this month hands over the reins to Allan Leighton. The latest glittering prize to fall Mr Norman's way was the safe Tory seat of Tunbridge Wells. He now becomes a part-time executive chairman.

Few in the City argue with the results. But it is the fruits of Project Breakout which will decide if Asda remains a bankable investment. Similar returns on the shares over the next five years are unlikely - although stockbrokers continue to recommend Asda.

The stage seems to be set for a period of humdrum growth. However, the group has continued to make headlines in its efforts to battle against restrictive practices. Most prominent has been its campaign to break the retail price maintenance (RPM) agreement in over-the-counter pills and medication - one of the few remaining legally supported price-fixing arrangements, since the collapse of the net book agreement. Asda won a major concession when the Office of Fair Trading agreed to take RPM to the courts.

The commercial advantages of such ventures are open to question. Even if Asda can sell pills, the entry of rivals will ensure its head start is short-lived.

Given a mature UK market, all supermarkets are faced with the same conundrum: how to compete against rivals while there is so little to differentiate them. One answer is to focus on service: "Friendly, motivated staff are probably more important than anything else, other than price," says finance director, Phil Cox.

So Project Breakout is very much a case of Asda sticking to its knitting. It wants to continue to push up margins, while adding value to products. It takes seriously the slogan, "Asda: good honest value". The group was one of the first to spot the opportunity for price-cutting, and although that seems to be fading, it has proved a boon for Asda's market share. Mr Cox describes the essence of Project Breakout as "permanently low prices".

Clothes, however, offer the attractions of higher margins. Asda hopes that see clothing sales, running at around 6 per cent of total sales, will double over the next three years. Last year, it paid pounds 16m to buy in the remainder of George Davies Holdings, the company of the former Next supremo and fashion guru. Sales of clothes from October to June this year rose 10 per cent. Asda wants to make the "George" label Britain's second family clothing brand.

And CD and video sales have passed the pounds 100m mark to make it the fifth- biggest home entertainment retailer in the UK.

In 1995 it invested pounds 349m, of which the bulk, pounds 136m, went on new store openings. Another pounds 111m went on refurbishment, with the rest on systems, distribution, and the like.

These developments are only incremental in propelling sales higher. And by most criteria, it has caught up with the opposition. There may be room for small improvements; its pre-tax margin, at around 5 per cent, remains less than Tesco (5.6 per cent), or Sainsbury's (5.7 per cent).

Despite the gains of the last few years, the shares trade in line, or a little bit cheaper, than the sector. While the party may be over, its rate of growth should still look good compared to its peers. On a yield basis, the 3 per cent that looks obtainable in 1997 is tight. But the prospect of reasonable capital appreciation, underpinned by strong cashflow, should sway doubters.

Asda

Share price 118.5p

Prospective p/e 14.4*

Gross dividend yield 2.8%

Year to 27 April 1994 1995 1996 1997* 1998*

Turnover (pounds bn) 4.82 5.29 6.04 6.44 6.91

Pre-tax profits (pounds m) (125.9) 257.2 311.5 335 373

Earnings p/s (p) (5.91) 6.16 7.96 8.2 9.1

Dividend p/s (p) 1.76 2.2 2.65 3.0 3.3

*NatWest Securities forecasts

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
ebooksNow available in paperback
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

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas