House of Fraser looks a bargain

House of Fraser, the department store group that owns Dickins & Jones and Army & Navy, may have proved one of the most popular non-privatisation flotations when it came to the market last spring but its performance so far has been pretty dismal.

The100,000 or so small investors who rushed in, attracted by the presence of former Willams Holdings founder Brian MacGowan in the chair, must be regretting their decision. Mr MacGowan may have built a stock market darling at Williams but his performance at House of Fraser thus far begs questions.

The warm autumn weather knocked sales of winter clothing such as coats and knitwear and the January sale ran out of steam despite early promise. From the flotation price of 180p the shares have been on the down escalator, finishing a further 8p lower at 144p yesterday after the retailer announced its first full-year results as a public company.

Though sales from continuing operations were up from £722m to £754m, pre-tax profits for the year to 28 January were down to £28m from £34.5m, dented by flotation costs and markdowns.

However, there is light at the end of this rather long tunnel. The building blocks of a recovery story look to be in place. Like-for-like sales of 8.4 per cent look reasonably healthy and the change to the product mix looks sensible, reducing exposure to difficult sectors such as large electrical appliances and furniture to focus on a mix of ladieswear, menswear, and accessories.

Smaller, older stores are being closed and the larger, flagship stores expanded and refurbished. Capital expenditure will increase from £29m last year to £35m this year, of which £21m will go on refurbishment of 10 large stores. A further £6m is being spent on improved computer and stock control systems to help avoid the expensive mistakes that dogged the company's recent past.

House of Fraser is placing considerable faith in its Frasercard, which looks an expensive way of building customer loyalty.

The danger is that customers take the card, accept the 10 per cent discount on their first purchase and never darken House of Fraser doors again. However the company says only 7 per cent of card-holders fall into this category.

NatWest Securities is forecasting profits of £44m next year, which puts the shares on a prospective price-earnings ratio of 11.5 against a sector average of just over 13. This puts House of Fraser in the bargain basement category.

Few fireworks can be expected from the share price in the immediate future, but it might be worth holding on to see if Mr MacGowan can live up to his reputation.

Fisher shows

the strain

Thirty months into his job as executive chairman of food group Albert Fisher, Stephen Walls looks as beleaguered as ever. The shares, up 1p to 44p, are languishing well below last year's 52p rights price and a fraction of their 1990s high just above 130p four years ago.

Fisher's half-year report to February, issued yesterday, appears to offer little solace, with profits slumping from £30.6m to £12.6m. The picture is muddied by Mr Walls' programme to drag the company away from commodity fresh produce and into higher value-added products such as prepared foods. Exceptionals turned from a gain of £10.5m to a loss of £6.5m in the latest period as Fisher exited from a German produce business and Belgian food- broking.

Mr Walls says the period of restructuring is at an end and the benefits should start to come through. Indeed, he was stressing the rise in operating profits from continuing businesses from £20.4m to £22.6m. But Fisher remains exposed to volatile and competitive markets. Operating profits from European fresh produce slipped to £2.8m from £3.5m partly because the previous figures were boosted by an extended South American citrus fruit season, partly because of competition in food distribution.

And despite acquisitions in seafood, higher prawn stocks and lower results from cockles and mussels meant operating profits there inched up to only £7.5m.

Mr Walls claims he has never been so upbeat about Fisher, with the prospect of pushing more products through acquisitions such as Aqua Star, a US seafood distributor acquired in February. But gearing has crept up to 55 from 48 per cent a year ago, despite the rights cash, while dividend cover will clearly take a while to rebuild.

If Fisher manages profits of £38m this year, the shares would stand on a prospective price-earnings ratio of 11, high enough even allowing for bid prospects.

Ibstock builds on past actions

Ibstock, the bricks to pulp group, is emerging from the recession that hit both of its main markets in the early 1990s with almost as big a bang as when it went in.

Yesterday it reported a bounce back to profits of £14.3m in the 12 months to December from losses of £18.7m in 1993. And a doubled final dividend to 1p - raising the annual total by 50 per cent to 1.5p - shows the board in a more confident frame of mind than it has been for some time.

The comparison is flattered by the effects of management's efforts to reshape and streamline the business, which resulted in a £20.7m charge in 1993. But the results are clearer at the operating level.

The biggest bounce came in the remaining pulp and timber operations, where a loss of £4.17m turned into profits of £5.28m. That should make the main Portuguese-quoted subsidiary more attractive following Ibstock's decision to put its 56 per cent stake up for sale.

The core bricks to roof tiles business was also a beneficiary of past actions, but higher volumes on both sides of the Atlantic also helped, raising operating profits from £4.45m to £11.5m.

Gearing of 14 per cent means that the mooted acquisition of Tarmac's brick interests would not strain the balance sheet, even without a Portuguese sale. Ibstock's plans to spend £10m expanding brick production at a time when the housing market is looking flat again is a slight worry, but the company believes volumes can be maintained this year.

On forecast profits of £24m for the current year, assuming no Portuguese sale, the shares at an unchanged price of 82p stand on a prospective multiple of close to 13. Fair value, although Brierley Investments' 7 per cent holding adds spice.