Woolies egged on by Easter sales

Barratt's diversity makes it worth holding; Art lovers help Hiscox move back into black
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The Independent Online

"We are omni-dominant in the Easter egg market." So says Trevor Bish-Jones, the chief executive of Woolworths who likes to sprinkle management-speak with, well, made-up words. "We expect to sell 20 million eggs over the totality of the egg period," he continued. No wonder Gerald Corbett, the chairman, looked like he might combust with laughter.

"We are omni-dominant in the Easter egg market." So says Trevor Bish-Jones, the chief executive of Woolworths who likes to sprinkle management-speak with, well, made-up words. "We expect to sell 20 million eggs over the totality of the egg period," he continued. No wonder Gerald Corbett, the chairman, looked like he might combust with laughter.

Amusing though his oratory might be, Mr Bish-Jones is clearly doing something right at Woolies, which was demerged from Kingfisher in 2001. It swung back into the black last year, margins edged up by 0.5 per cent and he seems to be getting the basics of this business right.

Christmas has long been a banana-skin for this company but this time, Mr Bish-Jones says, on-shelf product availability was up by 2 percentage points and queues were down 9 per cent.

Success in the future should come from growing margins rather than sales. Given Woolies made profits (before tax, goodwill and one-offs) of just £53m on sales of £2.7bn, there is clearly much to go for.

The list of 1,180 suppliers will be cut by 20 per cent this year with more reductions to come. Shrinkage (the retail word for theft) is also being targeted, with staff now being scanned when they leave the stores or head office. Own brand ranges are also increasing margins in areas such as toys, where Woolies' market share has grown from 17 per cent to 18.5 per cent in the past year. Additional growth is also coming from upmarket ranges in home accessories as Woolies finds its customers have more spending power than they thought.

The management is cautious on a refurbishment programme ahead of a property review which may see some stores sold or moved. A new format trial in three branches has gone well, but is only being done in four more this year.

Woolworths Big W, the out-of-town hypermarket chain, is doing better now that contracts with suppliers such as Peacocks – for clothing – have been renegotiated.

The shares, which were demerged at 25p, ticked up 10 per cent to 32p yesterday. With earnings growth of 20 per cent forecast this year, the forward price-earnings multiple of 10 makes them look cheap. Buy.

Barratt's diversity makes it worth holding

Barratt developments' interim results yesterday were an impressive tribute to Frank Eaton, its former chairman and chief executive who died in a car accident last October. Profits were up 36 per cent on turnover up 26 per cent, and its return on capital was 32 per cent, among the best in the industry. The shares jumped 5 per cent as analysts acclaimed the group as being among the best organised in the housebuilding sector.

The group is also among the most diversified, with new homes ranging from a £62,000 one-bed flat in Glasgow to a £1.6m penthouse apartment with views over London's Regent's Park. It is not heavily exposed to the South-east England market, which is demonstrably cooling, and should prosper as long as the current slowdown in house price inflation does not turn into a crash. Its large land-bank and expertise in urban regeneration will also be big pluses.

There is no need to run screaming from the housebuilding sector for now, while the jury is still out on the market, while earnings and dividends are still being lifted, and while shares still trade on rock-bottom valuations. Up 19p to 398p yesterday, Barratt, in particular, is worth holding.

Art lovers help Hiscox move back into black

In insurance, a hard market is not difficult, not difficult at all. It means premiums are holding firm or rising, and the industry is enjoying a very hard market right now. Hiscox, which counts insuring the art collections of the wealthy among its specialisms, was back in the black yesterday, boasting a £20.3m profit in 2002, compared with a £32.5m loss the year before.

That performance is all the more remarkable given that the group is still suffering from the World Trade Centre collapse, which gave the industry its largest bill ever. Hiscox said yesterday it topped up provisions for payouts by an extra £10m, on top of £30m already.

The 11 September attacks boosted demand for insurance just as it wiped out a lot of the industry's capital and, therefore, ability to provide cover. Robert Hiscox, the chairman, believes the imbalance will ensure the hard market endures for some time yet. Premiums "go up in the lift, and come down the stairs," he says.

But Hiscox is about more than just riding the premium cycle. In fact, it is about trying to smooth it, and the group has diversified out of the Lloyd's of London commercial insurance market into retail insurance, which is less volatile. That, coupled with a commitment to try (terrorist carnage permitting) to raise the dividend each year, make Hiscox suitable for the long-term investor.

The share price values Hiscox at 1.6 times net tangible assets, a hefty premium to the rest of the Lloyd's insurers but one that its quality and diversity justifies. The group is sailing the right course with a favourable wind behind it. Up 1.5p to 155p yesterday, and up 16 per cent since we said buy a year ago, the stock is still worth holding.

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