Customers' Abbey habit may yet bring rewards

Stay tuned in to Capital Radio; Value in store at Clinton Cards
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The Independent Online

Abbey National is changing its consumer brand name. As plain Abbey, as we are now to know the new straight-talking bank, it is determined to put its past behind it and improve revenues by next year.

Luqman Arnold, its chief executive, has been charged with turning around Abbey's fortunes. He will spend an estimated £200m on dropping National from its name (including refurbishment of the branches). But since his promise last week was to turn not only Abbey, but the whole concept of retail banking, shares in the company have slipped. The City has failed to be convinced that anyone but the marketing consultants behind the branding change will benefit.

Mr Arnold freely admits that the bank has for years failed its shareholders and customers by rushing into fields "in which it had no customers or competencies" and that it "lost the plot with the retail bank". Shareholders are still reeling from this year's £144m six-month loss from the failed foray into wholesale banking, and are waiting for Abbey to be just a mortgage, savings and current account bank once more.

Mr Arnold has to show, however, that his shiny new branches will deliver simplified products and services to its customers that are still competitive. This is the key to success for the bank and Abbey is, at least, making progress on simplifying its product range. It is also now mostly rid of its unwanted businesses, giving it a clean platform from which to rebuild, and it has started to claw back some of its market share in its core mortgage business.

Mr Arnold still has a lot to prove, but he does have a large, loyal customer base that just might start to buy more of the bank's products if his strategy comes off. At 494p, Abbey is trading at about 11 times its expected cash earnings, compared with a sector average of about 10. This makes it more expensive than the likes of Royal Bank of Scotland, which it is not yet worthy of. But Abbey is worth holding on to for now, as there may well be upside.

Stay tuned in to Capital Radio

Capital Radio managed to remove a significant uncertainty yesterday by announcing a big-name presenter to replace the outgoing Chris Tarrant on its flagship station. But the stock market is hard to please, and the company's shares closed down 5 per cent at 472.5p.

The morning breakfast show on 95.8 FM is important both from a financial point of view and in terms of sentiment towards the company. The management should have replaced Tarrant at least a year ago, instead of letting this issue hang over the company.

Finally, yesterday, we had the news that Johnny Vaughan, the former host of television's Big Breakfast programme, is to take over from Chris Tarrant. Giving Neil Fox, the internal candidate, the job would have been the safer and easier option. Instead, Capital has gone for a largely untried entity in the position and someone who comes with his own very individual style - which certainly gets up the noses of some people.

However, Mr Vaughan is a very accomplished performer and he will bring new listeners to the stations. No doubt he will lose 95.8 some audience. Because people have got so attached to Tarrant, some have listened to the stations well beyond the age when they might naturally warm to the likes of Sean Paul that it plays. Those people may migrate elsewhere now.

However, Mr Vaughan appeals to the key 25-35 age group that the station is targeting so, after some settling down, he could prove a very good signing.

Capital's trading statement last week gave no real sign of an improvement in advertising but the comparatives get a lot easier from here. The stock is on a forward multiple in the early 20s and with sector consolidation also on the cards, it's worth holding.

Value in store at Clinton Cards

The grey "me to you" teddy bear range is still proving a hit at Clinton Cards, not to mention its range of talking and singing greetings cards.

Sales, on a like-for-like basis, were up 3.6 per cent in the six months to 3 August - slightly beneath the 4.3 per cent rise last time - while current trading has accelerated.

Sales in the seven weeks to 21 September were up 3.9 per cent on a like-for-like basis -- providing reassurance that the hot summer weather that has hurt others on the high street has not been a real problem for Clinton Cards.

The company makes more than 90 per cent of its profits in the second half of the year, so the Christmas period remains, as ever, critical for the business. First half pre-tax profits were £1.5m, up from £1.1m last time.

The company, which estimates it has about a 17 per cent share of the market, expects to be trading from around 730 stores by the end of the year.

It also believes it is well placed for the key Christmas season with an extended range of the "me to you" teddies and festive gift wrap on top of the cards.

Analysts are forecasting that the company will make a profit of about £29.5m this year, translating to earnings of about 30p. That puts the shares, up 5.6 per cent last night at 263.5p, on a multiple of about 9 times - which does not seem expensive. There's also a bonus issue, which should help liquidity. Buy.

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