Check out Safeway for value

FirstGroup; Proactive Sports  
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The Independent Online

Safeway has to fight hard for its plaudits but no one can deny that this is a business transformed since Carlos Criado Perez took over as chief executive two years ago. Sales are growing, customer numbers are rising and the City is beginning to believe in the company's guerrilla tactics, which involve a constantly changing round of price promotions.

As ever, the question is whether it can last. The shares are off their peak and any signs of a slowdown in yesterday's second-quarter trading update would have been pounced upon. In fact the figures were good. Like-for-like sales growth of 5.4 per cent in the 16 weeks to 13 October is up there with J Sainsbury and Tesco.

The figures showed an eighth consecutive quarter of growth, meaning the Safeway is achieving strong growth against difficult comparisons. Sainsbury, by contrast, is up against weak numbers last year.

Total sales growth is nothing special at 5.6 per cent in the second quarter, reflecting only two new store openings. But further progress will come from store refurbishments, with the 33 being revamped at the moment taking the total to 80 to 100 by the end of the year.

Safeway's first hypermarket store opens in Plymouth in the next few weeks, offering another avenue of growth, though also a potential stumbling block. It is pushing suppliers hard for help on price promotions while trying to be more innovative in-store with fresh food displays and takeaways.

One of the key questions in this sector is who will be the winners and losers when tougher times eventually follow the current benign period.

Safeway's problem is that it is ranked fourth in a market where size counts and it has to work doubly hard to keep up, let alone pull ahead. The advantage for shareholders is that this is more than factored into the price.

Assuming full year profits of £375m the shares – down 9.25p to 333p yesterday – trade on a forward price-earnings multiple of 14. This compares to Sainsbury's 18 times and looks decent value in a defensive sector.


When Stephen Byers, the Secretary of State for Transport, put Railtrack into administration, shares in FirstGroup plunged. The company has three train operating franchises and the Government's latest dramatic and unexpected intervention in the industry put the fear of god-knows-what into investors. Share prices always suffer in periods of prolonged uncertainty, they reasoned.

Three weeks on and not much is clearer. Although there are risks of disruption to maintenance while Railtrack's successor is bedded down, it is just as likely the train operators will do well from having a stake in the not-for-profit trust that replaces Railtrack.

Whatever the outcome, there is enough stability in the rest of the transport group's business to encourage investors to have another look.

FirstGroup said yesterday that trading for the financial half-year ended 30 September will be in line with forecasts and that it is creating the post of a president for its North American operations. That was a useful reminder of the reason its shares have outperformed the FTSE All-Share by 60 per cent in the past year: the US business is growing strongly as education authorities outsource their school bus services. FirstGroup is said to have won significant contracts in the run-up to the new school year.

Give or take some little local difficulties, such as the Edinburgh bus wars, where FirstGroup is battling aggressively to win market share, the UK bus operations have their costs under control. The London market is recovering, as fewer companies tender for routes.

On 10 times forecasts of this year's earnings, FirstGroup shares – up a tuppence to 290p – are worth holding.

Proactive Sports

Proactive Sports is pretty good at making money for the football stars it represents; it is yet to prove it can make any for its shareholders. The stock was unmoved at 23.5p after maiden figures yesterday, compared to a May float price of 25p.

The results, showing a profit of £1.3m, contain only a few months of the business but, on a turnover of £3m, they do show how lucrative the returns can be from advising players and clubs in the transfer market. There is yet to be any meaningful revenue from Proactive's sideline organising hospitality packages for some of the big Premiership clubs such as Manchester United.

So the focus was instead on prospects for the coming season. After two acquisitions in its short life on the market, Proactive has 238 professional players under contract, including 71 internationals. With player fees continuing to swell, Proactive is well placed to take a large cut.

The company is the cheapest of the sports managers listed in the UK, whether by multiples of sales or projected earnings. While these stocks have been held back by the malaise in the wider advertising and marketing sector, Proactive could, in time, prove to be a nice little earner.