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

Arts and Entertainment
books
Voices
Caustic she may be, but Joan Rivers is a feminist hero, whether she likes it or not
voicesShe's an inspiration, whether she likes it or not, says Ellen E Jones
Arts and Entertainment
The Doctor and the Dalek meet
tvReview: Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Sport
Diego Costa
footballEverton 3 Chelsea 6: Diego Costa double has manager purring
PROMOTED VIDEO
Life and Style
3D printed bump keys can access almost any lock
techSoftware needs photo of lock and not much more
Arts and Entertainment
The 'three chords and the truth gal' performing at the Cornbury Music Festival, Oxford, earlier this summer
music... so how did she become country music's hottest new star?
Life and Style
The spy mistress-general: A lecturer in nutritional therapy in her modern life, Heather Rosa favours a Byzantine look topped off with a squid and a schooner
fashionEurope's biggest steampunk convention heads to Lincoln
News
Dr Alice Roberts in front of a
peopleAlice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
News
i100
Arts and Entertainment
Star turns: Montacute House
tv
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
i100Steve Carell selling chicken, Tina Fey selling saving accounts and Steve Colbert selling, um...
Arts and Entertainment
Unsettling perspective: Iraq gave Turner a subject and a voice (stock photo)
booksBrian Turner's new book goes back to the bloody battles he fought in Iraq
News
The Digicub app, for young fans
advertisingNSPCC 'extremely concerned'
News
i100
Arts and Entertainment
Some of the key words and phrases to remember
booksA user's guide to weasel words
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

Law Costs

Highly Attractive Salary: Austen Lloyd: BRISTOL - This is a very unusual law c...

Network Engineer (CCNP, CCNA, Linux, OSPF, BGP, Multicast, WAN)

£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...

DevOps Engineer (Systems Administration, Linux, Shell, Bash)

£50000 per annum: Harrington Starr: DevOps Engineer (Systems Administration, L...

Data Scientist (SQL, PHP, RSPSS, CPLEX, SARS, AI) - London

£60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...

Day In a Page

The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor
She's dark, sarcastic, and bashes life in Nowheresville ... so how did Kacey Musgraves become country music's hottest new star?

Kacey Musgraves: Nashville's hottest new star

The singer has two Grammys for her first album under her belt and her celebrity fans include Willie Nelson, Ryan Adams and Katy Perry
American soldier-poet Brian Turner reveals the enduring turmoil that inspired his memoir

Soldier-poet Brian Turner on his new memoir

James Kidd meets the prize-winning writer, whose new memoir takes him back to the bloody battles he fought in Iraq
Aston Villa vs Hull match preview: Villa were not surprised that Ron Vlaar was a World Cup star

Villa were not surprised that Vlaar was a World Cup star

Andi Weimann reveals just how good his Dutch teammate really is
Bill Granger recipes: Our chef ekes out his holiday in Italy with divine, simple salads

Bill Granger's simple Italian salads

Our chef presents his own version of Italian dishes, taking in the flavours and produce that inspired him while he was in the country
The Last Word: Tumbleweed through deserted stands and suites at Wembley

The Last Word: Tumbleweed through deserted stands and suites at Wembley

If supporters begin to close bank accounts, switch broadband suppliers or shun satellite sales, their voices will be heard. It’s time for revolution