Bottom Line: Betterware bears picnic on fears of slower growth

THE Betterware bears found fertile ground for complaint in yesterday's annual figures. During the past 12 months its shares have halved in value and underperformed the market average by 60 per cent.

That fall may seem justified given that profits in the year to 26 February rose by just 3 per cent to pounds 14.1m, disappointing for a company supposed to be fast-growing.

Betterware explained last year's poor performance by pointing to the large VAT refund, which inflated the comparable figures. The rise in underlying operating profit was a healthier 19 per cent.

The company also warned of a slow start to the current year, prompting analysts to downgrade forecasts. Betterware has reported teething problems getting its new distribution hub in Birmingham operational. Consumer anxieties prior to the April tax increases did not help. As a result, shares dropped another 5p yesterday to close at 123p.

But the City's concerns are more than just short-term. There are doubts about the sustainability of Betterware's once-dazzling growth record. In addition, sentiment was knocked when Andrew Cohen, chief executive, sold a sizeable chunk of shares last June at 230p - almost twice yesterday's price.

On the plus side, Betterware's expansion into Europe appears to be going well. And while the UK growth is undoubtedly slowing, sales here still rose by 13 per cent. Gross margins also improved.

Earnings per share increased 10.6 per cent and the dividend was lifted 30 per cent to 2.6p. Thanks to the precipitous fall in Betterware's share price the gross yield is now 2.6 per cent.

On forecasts cut from pounds 16m to pounds 15m, the shares are trading at 12.5 times prospective earnings, a 25 per cent discount to the retailing sector. That may look mean since it has no net debt and a positive cashflow, but given the City's concerns, the shares are unlikely to go much higher.