Keep Carpetright tucked safely in the bag

Johnston Press; Eldridge Pope
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The Independent Online

If there is anything more exciting than selling carpets then Lord Harris of Peckham doesn't know what it is. The man lives and breathes his Carpetright retail business and will talk for England about its merits. Indeed if you cut him open you'd probably find a hallmark saying Wilton or Axminster.

His strategy is simple. Open more stores to reach the stated aim of 30 per cent market share and increase margins to a target 15 per cent via economies of scale and more in-house carpet cutting.

Yesterday's figures showed good progress as the company reported a 17 per cent increase in first-half profits to £22.3m, including £1m of property proceeds. Like-for-like sales were up 8.8 per cent in the first half and up 9 per cent in current trading. The only blip was on 11 September when the terrorist attacks coincided with the group's annual "Carpet Madness" sale.

The big news yesterday was a major increase in the store opening programme. Thirty more stores will open in the second half creating 300 jobs. This will take the portfolio to 377 with Lord Harris now saying it is possible to increase market share beyond the 30 per cent mark.

Margins were up by 0.25 per cent to 13.1 per cent with progress hindered by an increase in costs. Market share rose to 22 per cent from last year's 20 per cent.

Lord Harris says Carpetright is now grabbing increasing sales in the upmarket segment while holding on to its core customers. Two years ago carpets priced at more than £30 a square metre accounted for just 3 per cent of group sales. Now they account for 10 per cent and rising.

The result may be that the more upmarket Harris Carpets name could disappear before long with Carpetright becoming the group's sole trading name.

It all sounds good but much of it may already be in the price which has seen a huge surge since October. There is also the question of a possible weakening in consumer confidence and the start of rising interest rates. On Teather & Greenwood's full-year profit forecast of £53m the shares – down 24.5p to 596.5p yesterday – trade on a forward p/e of 12. Too high to buy but a solid hold with a near 5 per cent yield.

Johnston Press

JOHNSTON PRESS, the regional newspaper publisher, provided a rare note of cheer for the depressed media sector yesterday.

Sure, growth in advertising sales has slowed, but at least the figures are in positive territory. On top of that the company said full-year profit expectations were not only in line with guidance given before 11 September but were likely to be at the top of the £69m to £73m range.

The first half of 2001 saw advertising revenue grow 3.6 per cent, driven by a 13.0 per cent rise in recruitment ads. Yesterday's trading update said this growth had slowed in the second half of the year to 1.6 per cent ahead of last year, as recruitment ad sales growth dropped to 1.4 per cent.

Even so that is a better performance than national media companies, which have seen ad revenues drop by up to 21 per cent in recent months. Even at the regional level, rivals such as Trinity Mirror are well into negative territory.

Regional newspapers were seen as dull investments during the dot.com boom. That view has changed and the resilience displayed by Johnston in a downturn shows why.

Local and regional advertising holds up in downturns because it has an immediate impact – advertisers can see the affect of local radio or newspaper campaigns by increased customers coming through the door.

However Johnston admits that there is no forward visibility and, if the gloomier economic predictions are right, the downturn is bound to hit local advertising too.

Johnston Press shares have had a good run since hitting a year-low of 239p in October. Yesterday the stock closed down 11p to 360p. Although that leaves the stock on an undemanding forward multiple of 15, now may be the time to take profits.

Eldridge Pope

ELDRIDGE POPE is a grand old name of the leisure industry that has been gradually selling off its heritage. In the past few years the Dorset-based company has exited brewing, wine wholesaling and packaging to concentratesolely on pubs. There is even a possibility that the group could disappear altogether with rumours of a possible bid from Greene King.

That will depend on the views of the Pope family which still controls almost half the shares in the company. But the stock could be a good bet either way as a new chief executive has been brought in from Whitbread to improve the trading performance.

Mike Johnson joined in September and has been focusing on financial targets such as margin and return on capital.

Yesterday's full-year figures looked decent at the trading level though analysts downgraded their current year forecast on the back of higher insurance cost and an extra £0.5m payment towards the company's defined benefit pension scheme.

Profits in the year to September were up 31 per cent to £6.1m and like-for-like sales in the group's 180 managed pubs were up by 2.7 per cent.

Mr Johnson will run the 63 tenanted pubs for cash while investing in more managed houses. These will be both local pubs with accommodation and the group's modern Toad brand in town and city centres. There is talk of a possible acquisition.

On Teather & Greenwood's current year profit forecast of £7.7m the shares – down 0.5p to 252.5p – trade on a forward p/e of 11. With a bid distinctly possible, it is worth holding on.

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