Carphone Warehouse talks the talk

London station keeps Capital out of tune; Funeral planning gives Dignity a market edge
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The Independent Online

Carphone Warehouse has kept shareholders hanging on for the past 12 months - hanging on to their shares, that is. The group, which began life selling mobile phones but these days is just as likely to sell you a fixed telephone line, has benefited from the intense rivalry between handset manufacturers and among networks, ringing up some pretty impressive sales figures in the process.

Yesterday's trading update for the fourth-quarter of its financial year revealed that our obsession with mobile phones has hit new heights, with total connections growing by almost one-third to 1.44 million. Not only was this better than expected, but crucially for Carphone, the snazzy new camera phones are tempting people back to high-margin subscriptions.

The company expects mobile connections to soar by 15 per cent this year, driven by its mammoth new store-opening programme. This is more than double its previous guidance, prompting analysts to upgrade their forecasts for the year to March 2005. It will spend £80m on opening 200 new stores, increasing its UK presence from 500 to 625 sites. Had it not been for the multi-million pound marketing campaign the group is planning for its fledging fixed line business TalkTalk, the City would have dialled up some even higher numbers.

Talking of TalkTalk, the bit that should cushion the company from any slowdown on the high street, optimistic projections see it more than doubling its current customer base to 1 million by this time next year. Carphone is expanding TalkTalk across Europe: yesterday it spent £13.3m on a Swiss reseller. Charles Dunstone, the chief executive, insists the company remains smitten with retail, given that it needs its shops to recruit fixed-line customers, yet admits that the 44 per cent that its stores contribute to its bottom line is likely to fall. That the group fits into neither the pure retail nor pure telephony camp, makes its shares, flat yesterday at 147.5p, tricky to value. Either way, there is no need to hang up now. Hold.

London station keeps Capital out of tune

Capital Radio still has to prove that it can fix the problems at its flagship 95.8FM station in London.

The company has great assets and is arguably the market leader in the UK. However, quarterly trading figures out yesterday, for the January to March period, the second quarter of its financial year, showed that the company is continuing to underperform the radio sector.

There is one reason for this: the group's performance is dragged down by poor audience figures for 95.8 FM, which then hits advertising revenues. Analysts estimate that this station accounts for 30 to 40 per cent of group revenues.

After growing 5 per cent in the past three months of 2003 (the first quarter), the quarter just ended saw 2 per cent sales increase across the company. This was as forecast - to the relief of the City. Other radio brands owned by the company such as Century and XFM, are clearly doing well.

A major plank of the company's solution for 95.8FM is a new presenter for the all-important breakfast show, is about to be tested. Today is Chris Tarrant's last morning hosting the programme before he hands over to Johnny Vaughan. It will be several months before we find out how Mr Vaughan does but there are good grounds to believe that he will be a hit and also manage to attract a younger audience.

Capital Radio shares, which closed yesterday at 488.5p, trade on a forward multiple of 25. Given Capital's underperformance, it's just a hold.

Funeral planning gives Dignity a market edge

There is little risk that Dignity, Britain's largest provider of funeral services, which floats on the stock market today, will run out of business. The company says people have been dying at a stable rate of 600,000 a year since 1950, and are showing no signs of getting closer to immortality.

Dignity will become Britain's only public listed company dedicated to providing funeral solutions, with its shares starting trading at 230p. It will have a market value of £184m.

The company last year conducted funerals and cremations for almost a fifth of those who died in the UK, and is number two in the funerals market to the Co-Operative group, which controls 14 per cent of the sector.

But Dignity makes more revenues from deaths because it also runs a pre-arranged funerals plans business, which doubled in size last year.

By going public Dignity has been able to raise more than £100m to pay off some of its more expensive mezzanine debt and loan stock, though its gearing will remain high.

The business should not find it difficult to grow by snapping up some of the myriad family-run businesses that still dominate the sector. This presents opportunities for synergies, such as sharing vehicles. Buy.