No rush to buy into Kingfisher

Informa sailing into calmer seas; Uncertain prospects weigh on CRC Group
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The Independent Online

Kingfisher has issued so many key announcements in the past few weeks that it has almost rivalled Boots in terms of productivity. It must be something to do with companies awaiting new chief executives – they just can't sit still.

Kingfisher has issued so many key announcements in the past few weeks that it has almost rivalled Boots in terms of productivity. It must be something to do with companies awaiting new chief executives – they just can't sit still.

Gerry Murphy has only been in the Kingfisher hot seat for a fortnight but the weeks preceding his appointment saw Kingfisher sell its troubled Promarkt electricals business in Germany, offload its retail park property portfolio in the UK and change the way it pays its executives.

All these initiatives have been well received and the trend continued yesterday with an upbeat fourth-quarter trading statement, which pushed the shares up 8 per cent to 225p. It had analysts raising their profit forecasts to about £255m and their price targets to 240p.

Group like-for-like sales growth of 3.6 per cent was a good performance in the current climate. Crucially there were no nasties emerging from Castorama, the French DIY chain of which Kingfisher assumed full control last year.

In December this column recommended waiting until the spring to buy Kingfisher shares in order to see how the demerger of the electrical business goes. That process will now take place on the London market by May or June. The good news is that there should be no significant change in tax charge, interest bill or dividend policy. The main outstanding issue is the rising central costs from electricals needing its own head office but the market seemed to be taking a relaxed view on all that yesterday.

In trading terms B&Q is still going like a train, with interesting moves into own label power tools and garden equipment, where margins are higher and low prices should drive sales. At Castorama, there is scope to improve product ranges and stock availability whilst lowering prices through better sourcing.

The shares trade on a forward p/e of 14, which is not too demanding for a company that looks to be gaining momentum. Attractive, though there is still an argument for waiting for the demerger details.

Informa sailing into calmer seas

As a financial publisher it is not surprising that Informa Group has not been having the greatest time. However, its full-year figures for 2002, announced yesterday, appeared to show that the worst is behind it – unless there is a further serious deterioration in the economy.

The company publishes Lloyd's List, the shipping and insurance daily paper, dozens of niche trade publications and has a conference arm.

Informa shares have been sold off all year in anticipation of bad news, hitting a low of 131p. There was palpable relief from the market yesterday, sending the stock up 12 per cent to 155p.

According to Peter Rigby, the chairman, this was down to four positive factors. Firstly, the company maintained pre-tax profit at £30.1m, despite a 12 per cent fall in sales. That shows an impressive management of the cost base (headcount was reduced by 9 per cent). Debt is down by £23m to £96m. Thirdly, subscriptions now make up 35 per cent of group sales (up from 23 per cent two years ago) and this is resilient, recurring revenue.

Finally, the market was waiting to see how Informa's big mobile phone conference – taking place this week in Cannes – would go. There are 28,000 people at the event.

UBS Warburg, the broker, forecasts earning this year of 30.5p a share, putting the stock on a forward multiple of just 5. Time to buy in.

Uncertain prospects weigh on CRC Group

Repair and servicing businesses should, in theory, boom when times get tougher. But CRC Group, which makes and services mobile phones, set-top boxes and computer equipment, has not found that to be the case.

The second half was weaker than the first and CRC warned that trade is likely to remain at lower levels this year. No wonder the shares crashed 19 per cent yesterday.

About two-thirds of CRC's business comes from mending and servicing mobile phones while about 15 per cent relates to fixing computer equipment. Ten per cent comes from mending set-top boxes.

In the year to 31 December, pre-tax profits rose to £7.6m from £5.8m on sales of £109.6m, up from £98.1m. But the company had to take a charge of nearly £1m to cover the cost of an aborted acquisition attempt – talks that left its shares suspended for about three months last year.

The short-term outlook is grim. Analysts predict CRC's sales and profits will be more or less flat this year, though the group is still looking for a deal.

The shares trade on a forward price-earnings ratio of six times, which is is certainly cheap. But given the uncertain prospects the shares are best avoided.