GUS goes gunning for growth

Change at the top and prospects for electronic shopping switch investors on to mail-order group
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City investors may not all be typical GUS, Kays or Marshall Ward customers, but they have needed little inducement recently to snap up GUS shares.

It was not cash discounts or even half-year pre-tax profits - up 5.4 per cent to pounds 237m - that sent shares rocketing ahead, but the appointment of Lord David Wolfson of Sunningdale as chairman from next September, taking over from his cousin, Lord Leonard Wolfson of Mary- lebone. David Wolfson is popularly billed as the saviour of Next. He and his managing director, David Jones, turned it round from 1980s fashion victim to 1990s success story.

Lord Wolfson Mark II is expected to add extra zip to a sleepy group with home shopping, retailing in South Africa and Canada, finance and business information services and a sprawling property portfolio.

News of his appointment has also sparked talk of a merger between GUS and Next, and more radical changes such as the spinning off of Burberrys or the redistribution of the hefty GUS cash pile. Such big changes are some way off, but at the very least the market is looking forward to a greater openness between the traditionally rather secretive GUS and the City under his chairmanship. David Wolfson is no stranger to GUS. He has been involved with the family business founded by his uncle since 1960, rejoining the board in 1993 as a non-executive director.

Moreover there are few comparisons to be made between cash-rich GUS today and Next in 1990, then perilously close to going under. Certainly one analyst played down the market's great expectations of change. "It is just short-termism of the worst kind. GUS is not a sleeping giant."

Richard Pugh, deputy chairman of GUS, endorsed this view: "The appointment of Lord Wolfson does not signal a marked change of philosophy, but a new chairman will always bring new ideas."

Whatever the views on the new chairman, few can fault the company's record, which reads rather like a Mastermind script - profit increases for 47 years and no cash calls. Since 1991, the shares have climbed from around 250p to a high this year of 685p, earnings have increased by just over 19 per cent to 36.9p, and dividends have risen 38 per cent with shareholders receiving a bonus this year in the form of a 30p-per-share special payout.

While moves such as this and the enfranchisement of the A shares in 1993 are seen as signs of a more outward-looking policy at GUS, analysts still characterise the group as "con- servative" and "risk averse". It may be ungeared and sitting on a cash mountain of over pounds 1bn, but deal-making and flashy acquisitions are not its style.

Mail-order is at the heart of GUS - catalogues account for 45 per cent of operating profits - although it has slipped back as the other divisions, such as Burberrys and the finance and CCN business information arm, have moved up. The strength of GUS according to one analyst "is the fact that its two main businesses dovetail very well - the home-shopping companies generate cash, and the banking arm uses it".

Home shopping is the area where seasoned GUS observers expect to see most change, reflecting both the arrival of the new chairman and developments in the market.

"There is an enormous game to be played out in mail-order, and scope for a more aggressive approach from GUS," says Row-an Morgan, at broker Nikko Europe. With more than 8 million customers on its books, GUS is in a very strong position to flex its marketing muscles.

One important stimulus for change is the revolution prom-ised by electronic home shopping, which allows customers to browse on the Internet or via cable television. It is still at a very early stage, but the technology is developing rapidly.

Television shopping channel QVC, for example, has just announced plans for a pounds 14m expansion of its service on BSkyB. GUS is already on the Internet and, according to Mr Pugh, is geared up for cable television.

GUS has scope to advance on all fronts, and analysts are bullish on prospects. Mr Morgan at Nikko Europe is forecasting pre-tax profits of pounds 600m for the year to March 1996, up from pounds 562.8m in 1995. With a p/e ratio of 17, GUS is at a slight discount to the sector. "I expect shares to settle at the higher level," said Mr Morgan. "Despite its recent run, it's a stock you want to be in."