Liverpool retailer worth a buy

It is often easy to overlook opportunities that exist in retailing outside the mainstream. While the familiar names such as Tesco and Safeway grab the headlines, there are several smaller businesses in the provinces worth looking at, writes Richard Phillips.

One such is TJ Hughes, the Liverpool-based general stores group. A benefit of investing in any retailer is that they are among the easiest of businesses to check for yourself - it simply requires a visit to the nearest store.

And such homework is time well spent. So for those who are hesitant about this company, don't invest if you can't get a feel for the business on the ground.

What sets TJ Hughes apart from other smaller brethren is that it has begun a strong growth phase, which the market has yet to appreciate.

Two years ago, it had problems with thefts from a new warehouse and had also strayed away from its core customers. Those problems have since been dealt with, and the outcome was plain to see in the recent results. Full- year profits doubled to pounds 1.82m, with sales up 24 per cent at pounds 63m. On a like-for-like basis, the group managed an impressive 11.4 per cent increase in sales, and earnings per share grew by 102 per cent to 6.1p. The dividend was raised 10 per cent to 2.92p.

But the key to its future lies in an expansion programme, which should see two or three new stores open every year. It has positioned itself as a discount retailer, with a carefully targeted offering, aimed at socio- economic groups C1, C2 and D.

The stores carry household goods, fashion and shoes. But as well as good value for money, it will also carry designer labels such as Calvin Klein and Ralph Lauren, to give customers a broad range to choose from.

The style of the stores also avoids pushing a discount approach. From 11 stores in 1992, when sales were pounds 28m, there are now 18, with the latest opening in Rochdale. New openings will be concentrated in the North-west, and down the M6 corridor to the West Midlands.

Management has also been strengthened recently. Eric Hodges was hauled out of semi-retirement as a non-executive to become executive chairman in April following the departure of the managing director. Earlier this month, George Foster was appointed as the new managing director. He joins from Allders and has experience both on the buying side and in operations. He also worked with Mr Hodges in the past, so is familiar with the TJ Hughes philosophy.

Company broker Charterhouse Tilney forecasts sales will grow to pounds 72.5m in 1998, and pounds 84m in 1999. Pre-tax profits should rise to pounds 2.3m in 1998, and pounds 2.8m the year after.

On that basis, the shares, at 88.5p, are trading on a lowly 11 times forecast earnings and are a reasonable bet on a sensible management with a clear strategy.