Doorstep services pay off for London & Manchester

The Investment Column
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The Independent Online
The insurance sector has been an interesting place to be this year, with more government pension changes in the air and a constant background of takeover speculation. Yesterday's new business figures from London & Manchester and Sun Life & Provincial could add little to those debates, but gave some good pointers to the state of the underlying market.

Unlike famous names like the Prudential and Pearl, L&M has stuck with unfashionable "industrial branch" life insurance, aimed at workers without a bank account who typically save less than pounds 100 a year. The Exeter-based group has just spent two years restructuring its so-called home service in an attempt to revitalise the business.

The results look impressive enough. In the six months to June, the group recorded a 90 per cent jump in traditional doorstep-collected premiums to pounds 1.7m and a 19 per cent uplift to pounds 2.6m in the only slightly more sophisticated ordinary branch business, operated through a bank account. Part of these increases represent recovery from a dramatic decline in market share suffered by L&M during the 1990s, while part can be ascribed to a beefing up in the sales force from 700 to 820 over the past year.

The real test is whether L&M can instil any excitement into selling savings to the great unwashed. The potential is huge - some 20 million people, of whom a third still do not have bank accounts, according to chief executive Tom Pyne. But it is not clear what the advent of the sort of cheap and cheerful pensions likely to be advocated by Labour will do for L&M. With some 10 per cent of premiums swallowed by distribution costs alone, traditional industrial insurance will look dear to politicians.

Meanwhile, the continuing competition in the existing pensions market is clear in the other figures. L&M was up 11 per cent in annual pension premiums to pounds 6.4m, but down 19 per cent to pounds 14m in single premiums. Over at Sun Life, whose figures were foreshadowed in the documentation accompanying its planned pounds 670m takeover of AXA Equity & Law, pensions have also been decidedly mixed in the six months to June. Single premiums were up 9 per cent at pounds 391m, but regular premiums slid 13 per cent to pounds 49.7m. Within that, final salary payments crashed by about a half.

L&M's shares, up 1.5p at 409p, stand on a forward multiple of 12, assuming profits of pounds 59m this year. On a gross forward yield of 6.7 per cent, they should be held. Sun Life's next figures are complicated by the addition of Equity & Law, but the shares, down 5p at 352p, have tripled since last year and on a forecast gross yield of 3.9 per cent, are probably high enough for now.

Sketchley pins hopes on ducts

You have to feel a bit sorry for John Jackson, Sketchley's chief executive. Running a combined dry cleaner, photo processor, duct laying and workwear provider cannot be his idea of a dream job. Having made his name at less traditional retailers like the Body Shop and Virgin, Mr Jackson has shown a fondness for spicing up the dull-old Sketchley brand with distractions like Feng Shui philosophy for the staff and in-store aromas for the customers. Unfortunately Sketchley's problems ran rather deeper.

What Mr Jackson failed to spot was a series of grave accounting irregularities which led to the resignation of Richard Meyers, finance director, in May. These included overstating profits and a staggering pounds 5m shortfall in provisions for store closures. This was surely avoidable, particularly as Mr Meyers had been pulled off the board once before for questionable accounting.

Mr Jackson is now well aware that if the group fails to make the grade this year, he is unlikely to survive. However, he probably also knows that this year's numbers will look much better than last, with losses rising from pounds 3.5m to pounds 4.33m in the year to March.

While dry cleaning and photo processing are mature, by slashing prices the group has been able to grow volumes. However, Mr Jackson has higher hopes for duct services and workwear, which he reckons could be four-fifths of the business in a year or so. The recently acquired duct business, ARM, will grow fast this year and textiles' weak margins will improve with the demise of a cut-throat competitor.

Nevertheless, Sketchley has a credibility problem. It is hard to see what unifies duct services, textiles and dry cleaning other than financial dire straits. Mr Jackson's lame argument that all are "business services" is, frankly, tosh. More likely is that high upfront costs in textiles need to be met by the cash generation from ducts. With gearing at 139 per cent, Mr Jackson will find it tough to hit his two-year target of 60 per cent. The shares, down, 1.5p to 60p, are probably at a low on 8 times earnings, based on forecast profits of pounds 9.2m for this year. A new name, likely soon, may help sentiment. But this company does not deserve a re-rating.

World of Leather looks good for Uno

Uno, the furniture retailer floated on the Alternative Investment Market last July, has had a buoyant first year on the market. Priced at 134p, shares in the family-run business have motored up to 295p, after another 3p rise yesterday.

Since the float, Uno has also completed its first important acquisition, with the pounds 14m deal to buy the World of Leather stores in April, when it also took the opportunity to move up to the main market.

The World of Leather deal may have been criticised by snooty traditionalists for whom a black leather three-piece suite is social death, but it looks good as far as the City is concerned. Analysts point to figures that show the UK leather upholstery market should grow from pounds 400m to pounds 600m by 2001, outpacing growth in traditional furniture.

The combined Uno and World of Leather business has around 15 per cent of the market. Like-for-like sales are thought to have grown at double- digit rates at World of Leather in the nine weeks since the year-end of 26 April and management is investing in more efficient systems and training.

Yesterday's results showed group profits before exceptionals up from pounds 1.06m to pounds 2.86m in the year to 26 April. The figures exclude any contribution from World or Leather. They also exclude pounds 2m of exceptional charges for redundancies and stock write-offs, in line with expectations.

Sales at Uno, which has 11 outlets, are growing at 8.6 per cent in current trading. Management, led by Paul Rosenblatt, is sufficiently confident about World of Leather's prospects to add a further 20 outlets in the medium term, from the current level of 31.

Meanwhile, on full-year profit forecasts of pounds 5.25m, the shares, up 3p at 295p, trade on a forward rating of 15, falling to 11. With a fragmented furniture market giving plenty of scope for growth, they look good value.

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