Opportunity in Matalan's failings
Quintain shows promise with Greenwich and Wembley deals; Depressed telecoms make Volex one to avoid
Thursday 05 June 2003
Matalan seems to be doing its utmost to upset investors at the moment. Only a few months ago it rocked confidence by ousting chief executive Paul Mason. Then yesterday, just as the market was hoping for the start of a recovery, it issued what was basically a profits warning with falling sales and news of buying mistakes.
It's hard to say whether this warning is being laid at Mr Mason's door but at least the problems are internal ones which can be tackled rather than major changes in the market.
The bottom line is that Matalan's buyers got it wrong when ordering the spring-summer ranges. They went too trendy, too young and paid too little attention to Matalan's core, classic, customer segment. The punters voted with their feet with the result that in the 13 weeks to 31 May, like-for-like sales were down by 7.5 per cent on the same period last year.
That's the bad news. The good news is that margins are slightly up and new chief executive John King has already changed members of the buying team, bringing in staff from Marks & Spencer, Next and Arcadia. Their presence in the company should start to be apparent in the autumn-winter ranges.
The worry with this company is that it is trying to change so many things at once. Before yesterday's problem, the main worry was supposed to be the upgrading of IT systems and logistics to standards more appropriate to a company of Matalan's size.
One distribution centre has already been converted to the new system but there are two more to come. Shareholders will be hoping there are no nasty glitches in the pipeline.
Analysts were busy downgrading full forecasts yesterday and assuming full year profits of £120m, the shares trade on a forward price/earnings rating of less than nine. That looks too low given that founder and chairman John Hargreaves might well take the group private or sell up if there were fresh problems. An interesting recovery play.
Quintain shows promise with Greenwich and Wembley deals
Quintain Estates and Development used be a dull old commercial property company but it has been transformed over the last two years by its involvement in two exciting projects in London.
The company is part of a consortium that has taken on the Millennium Dome and surrounding land, totalling 190 acres on the Greenwich peninsular. The plan is to develop 14 million sq ft of mixed use scheme (a partner will take on the headache of the Dome). It has also taken on 55 acres of land and facilities adjourning Wembley stadium, including the conference centre, arena and exhibition business. This will see a 4-5 million sq ft mixed development.
Of course the completion of these giant schemes (with a £5bn end-value) is a long way off. Planning consent has been received for Greenwich but the Wembley application has yet to go in. But the potential of the sites led to a much larger than expected 13.4 per cent jump in Quintain's net asset value per share to 348p. It also benefited from revaluation of its retail holdings, after buying some shopping centres last year.
Quintain is a viable company now, with turnover up 14 per cent to £57.6m, though profits slipped by £2.9m to £14.0m. But this stock is all about the future and the scale of ambition of impressive. Together, the Greenwich and Wembley developments will provide 14,000 homes and create 30,000 jobs, regenerating two run-down areas of London.
The company is also active in the right areas as property companies dependent on office assets are reporting falling valuations. Quintain shares closed up 10 per cent at 282.5p, The profits, when they come, from the company's two big schemes, will be massive and the stock's discount to current NAV looks way too much. Buy.
Depressed telecoms make Volex one to avoid
Times continue to be tough in the telecoms equipment sector. Volex, which makes copper cable and also components for fibre optic networks, said its best hope was to continue to slash costs in a bid to boost its sickly bottom line.
The company has already sliced more than a third of its staff since its days as a £1bn giant of the dot-com boom.
The drying up in orders from telecoms operators has taken its toll on Volex's shares and today the company is worth closer to £20m.
Yesterday the company said sales were down 17 per cent to £230m in the year to 31 March, after a hoped-for upturn in orders in the second half failed to materialise.
However, cost cutting helped it back into profit at the operating level and its ability to generate cash despite tough trading conditions in the US, Asia and Europe impressed the City and the shares jumped 23 per cent to 73.5p.
Volex's chief executive, John Corcoran, who has now had his hand on the rudder for more than a year, appears to have finally stabilised Volex's margins.
The shares take account of the many risks Volex still faces - trading on only 6 times future earnings - but the outlook is still too uncertain to risk a punt. Avoid.
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