Gloomy picture at Colorvision

THE INVESTMENT COLUMN

The horizontal hold is well and truly on the blink at Colorvision, the television and video retailer. It's already struggling to cope with cut-throat competition in the electrical retail market and fragile consumer demand that shows few signs of strengthening.

Yesterday's announcement that the OFT is considering revoking the company's consumer credit licences merely added to the uncertainty surrounding a stock that has been a terrible performer since soon after floating in 1987.

The shares rode on the back of the late 1980s retail boom to hit 260p in June 1988 but have been on the slide since. Yesterday's 15 per cent fall to 40p takes the shares close to their all-time low of 24p.

The OFT warning is a matter of life and death for Colorvision. Credit finance accounts for almost half of group sales and a significant chunk of profits. Removing the finance income stream would turn the group into a loss-maker. Even if the licences are renewed the OFT is likely to insist that Colorvision upgrades its finance systems, which will increase costs and shave already wafer-thin margins. The negative publicity will also affect customer confidence.

The market is not exactly moving in Colorvision's favour either. Though sales of electrical goods have drifted out of town, nearly all Colorvision's 86 outlets are based on the high street where it must do battle with the larger and more powerful Dixons. Colorvision only has two out-of-town superstores and a handful of concessions in branches of Courts, the furniture group.

Though Rumbelows and most electricity companies have beat a hasty retreat from electrical retailing, little capacity is being removed from the market. Store groups are simply changing ownership.

Colorvision's broker Beeson Gregory is forecasting full-year profits of pounds 1.2m for the current year, which puts the share on a forward rating of 10. Even that cheap rating does not compensate for the considerable risks. Avoid.