Business Outlook: Monsoon prompts worries on price

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The Independent Online
So it was second time lucky after all for Peter Simon, the founder of the Monsoon fashion chain. The former encyclopaedia salesman, who had to pull the group's float 18 months ago, has signed up a blue chip register of shareholders at the second attempt and got a top of the range price into the bargain. The Armani-clad retailer is now pounds 88m richer and he still has three quarters of a business worth pounds 352m.

Institutional investors seem to have bought the story; the question for private investors is whether they should do the same.

This is a strong brand with a 12 year record of unbroken profit growth and a market position that seems immune to the volatile end of high fashion. But there are concerns. The key worry is the price. At 198p Monsoon has been floated at a premium to the market and at a staggering three and half times sales. This leaves little margin for error. The second concern is Monsoon's margins, which at the gross level are a staggering 62.6 per cent. Not much scope for improvement there.

The final issue is the abandonment of the float in 1996 over the ultimate beneficiaries of a Maltese-registered trust which owned two thirds of the shares. Mr Simon said then that he was not a beneficiary. He later retracted that statement by saying there were certain circumstances under which he might have benefited.

Even though all this is now in the past, he still will not say how the trust was set up, who its beneficiaries were, or how he managed to buy out its interest. This trust has now been unwound and another trust administered on Mr Simon's behalf will control three quarters of the business after it floats. So Mr Simon can legitimately claim he's removed all remaining concerns. But if all this is now irrelevant, why is Mr Simon so reluctant to explain it?

Outside investors will find themselves a powerless minority in a company dominated by a founder entrepreneur. The history of such companies generally doesn't inspire confidence. This is not to denigrate Monsoon, which is a good business, or Mr Simon who created and developed it. It may well be that all these concerns prove groundless and that indeed the stock will soar. Even so there's enough risk there to justify extreme caution.

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