Investment Column: Beds do better for Silentnight

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The Independent Online
Which way are investors in the UK's bed-making market to turn? As yesterday's announcements clearly show, the two biggest players, Silentnight and Airsprung, are having very different experiences. While Airsprung warned its half-year results would fall substantially below expectations, stripping 27 per cent off its share price, Silentnight, the UK's biggest bed and laminated furniture maker, is going great guns, reporting interim profits to August almost a fifth higher at pounds 6m.

Airsprung's problems look very specific. While its beds business remains comfortable, Airsprung flagged up serious management shortcomings and quality problems at a couple of recently acquired companies. That leaves Silentnight as a more reliable bellwether of the UK furniture market and a far better bet for investors.

With British folks only replacing their bed once in 15 years on average and prices static at around pounds 300 for an average double, the UK bed market has little room to grow. That said, after a downturn in the 1990s, rising consumer spending means the market is now bouncing back. Silentnight achieved an impressive 13 per cent rise in bed sales in the last quarter, boosted by post election confidence, to give an overall 9.4 per cent lift at the half year.

However, Bill Simpson, chief executive, says Silentnight's UK laminated cabinet division, currently 30 per cent of group turnover, is the key to long-term growth. Assembled laminated furniture is cheaper than solid wood and as technology improves increasingly popular. Silentnight has around half the UK market and has been growing cabinet sales at some 15 per cent a year for the past six years.

Consolidation among UK furniture retailers - witness yesterday's H&C bid for Kingsbury - will benefit the big players. Silentnight, with cash in the bank, will undoubtedly be looking to buy up casualties from that trend. It has already picked up cabinet business Meredew on the cheap. Though still loss-making, the business is recovering and adds valuable capacity.

The failure of a US furniture retailer hit Silentnight's US bed profits, but that is a one-off and cautious expansion into a strong US market will continue. Analysts forecast pounds 16m for the full year. On 13.5 times, the shares, down 17.5p to 315p after a strong run on Tuesday, look reasonable value.