Bluechip: Stock up on Storehouse
Sunday 17 August 1997
So it would be brave to believe that the shares, now at 221.5p, are worth 275p. Yet that is what analyst Julie Ramshaw at stockbroker Morgan Stanley says. Her argument is worth considering. Storehouse has been criticised for two reasons: poor like-for-like sales growth, and questionable accounting techniques. However, the recent AGM asserted that like-for-like sales growth was positive, with Mothercare and BhS improving. Ms Ramshaw thinks like-for-like sales growth is now three per cent ahead of last year for both divisions.
On the more intriguing issue of whether Storehouse has flattered its accounts, essentially by reducing its "other costs", she thinks not. The group flatly denies any suggestion that it has received uniform business rate rebates, up-front franchisee payments or property disposal profits that could have massaged the figures. This cloud has been hanging over the shares for two years, and it would be unusual for a public company to risk these denials if there were a chance it could be found out.
Take design. Storehouse used to outsource design, but the arrival of Keith Edelman as chief executive saw design brought in-house to enhance design content and productivity and keep a tighter rein on a key business area. As a result, this item moved from other costs to labour costs. So Storehouse still pays for its design - it just shows up under a different item.
Meanwhile, the business is forging ahead with its BhS Millennium refit. About 80 stores will have had the treatment by October this year. Management says the refurbished stores show an improvement of 3.5 to 5 per cent in sales.
Overall, the strategy so far has been to cut costs and improve gross margins. The task now is to build sales.
Morgan Stanley forecasts that pre-tax profits can hit pounds 131.2m in 1998, up from pounds 118.3m in the year just ended. In 1999, profits could hit pounds 146m. On that basis, earnings per share come in at 21.2p and 23.5p over the next two years, leaving the shares on a measly price/earnings ratio of 10 times and 9.1 times for the respective years. The current retailing climate is bound to generate some growth which, compared to the heady multiples of other retailers, certainly makes Storehouse cheap. With limited downside, the shares are a buy.
- 1 Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
- 2 Stamford Hill council removes 'unacceptable' posters telling women which side of the road to walk down
- 3 Kim Kardashian 'nude pictures' leaked on 4chan weeks after Jennifer Lawrence 'The Fappening' scandal
- 4 Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
- 5 New Tricks: Dennis Waterman to leave the show after a decade of crime-solving
Stamford Hill council removes 'unacceptable' posters telling women which side of the road to walk down
Kim Kardashian 'nude pictures' leaked on 4chan weeks after Jennifer Lawrence 'The Fappening' scandal
Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
Ice Bucket Challenge: US firefighter Tony Grider dies after participating in charity craze near power lines
Hitler’s former food taster reveals the horrors of the Wolf’s Lair
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...