N Brown at home with mail order

The Investment Column
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The Independent Online
N Brown may have decided against buying the Freemans home shopping business from Sears but chairman Sir David Alliance still sees plenty of room for growth for his family-controlled mail order group. One reason is the small share of the retail market controlled by home shopping. Currently it accounts for just 5 per cent of non-food retail sales in the UK, so N Brown still has the other 95 per cent to go at.

Another issue facing the company is the increased competition in the direct mail order market, though Sir David views even this positively. He believes the expansion of Marks & Spencer into clothing catalogues as well as similar moves by Burton will raise the profile of home shopping and help improve its image. He says the same of Great Universal Stores' ambitions to shift more towards direct mail order while reducing its reliance on the old-fashioned agency business

Sir David and chief executive Jim Martin admit that there are no sizeable businesses out there to acquire and that even the stream of smaller bolt- on deals is drying up. But they point to a like-for-like sales increase of 21 per cent last year and a 15 per cent increase in sales since the year-end as proof that this efficiently run niche retailer still has further to run.

Its performance last year was certainly impressive with profits up 19 per cent to pounds 37m and sales 21.5 per cent ahead at pounds 280m. The Sartor catalogue business, acquired last year, contributed sales of pounds 8m.

Though its traditional business has been with older female customers through catalogues such as Bury Boot and Shoe, N Brown is gradually targeting younger shoppers in their thirties.

It is also expanding its product range. Though clothing accounts for 57 per cent of sales the company is gradually expanding into other areas such as furniture, home products and electricals.

The company says there are 18 million women in its target age group in Britain and that it only sold to 1.4 million of them last year. It says sales can be built not just by attracting more customers but by encouraging existing shoppers to spend more.

Though clothing will still account for 50 per cent of sales for a few years yet, it is footwear and menswear which were the fastest growing sectors last year, increasing sales by 31 per cent and 38 per cent respectively. Given the poor performance of Sears's British Shoe Corporation, the footwear performance is particularly impressive.

N Brown's shares have been a terrific investment over the years, though they did take a hit when the company looked like it was going to buy Freemans. They rose 8p to 397p yesterday though they are still some way off their 451p peak at the end of last year. Still, on this year's forecasts of pounds 42m, excluding Freemans due diligence cost of around pounds 700,00, they trade on a forward rating of 20. About right for a high quality company.

Virtuoso score from

Boosey & Hawkes

Shares in Boosey & Hawkes, the music group, rattled back up to a new all-time high yesterday, rising 57.5p to 822.5p, a position they were near for a large part of last year. Part of the reason has been the exceptionally tight market for the shares. The US music publisher Carl Fischer sits on around one-half of them and does not look like letting go, even though Hayden Connor, scion of the family which owns Fischer, is stepping down as chairman after 10 years.

The reshuffle will cut Fischer's board representation to one, but there is no sign that the US group will match this with a willingness to relinquish its iron grip on the equity. That is a pity, because after eight years notching up 20 per cent per annum compound earnings growth, Boosey is getting close to the stage where its expansion needs will require a wider market for the shares and a greater ability to issue paper.

Yesterday's share rise came on the back of another sparkling set of results, which saw profits rise by a quarter to pounds 7.7m in the year to December. Part of the increase was due to a maiden contribution of somewhat over pounds 700,000 from Rico International, the Californian maker of clarinet and saxophone reeds acquired for pounds 17.9m last summer.

Even without Rico, the musical instruments division again led the way at Boosey last year, showing a 23 per cent underlying rise in profits to around pounds 5.1m. That was a decent performance against the background of dull markets in France, Germany and Japan and reflects a one-point rise in underlying margins after rationalising production and eliminating losses in Germany.

Publishing, up 3.4 per cent to pounds 4.84m, would have shown growth of 9 per cent before exchange. Bote & Bock, acquired a year ago, will chip in this year. The much-touted court tussle with Disney over the use of Stravinsky's The Rite of Spring may be worth a great deal less than the pounds 200m mooted originally, but anyway remains bogged down in the US legal system.

Cash-financed acquisitions will be constrained by gearing of 116 per cent, and even if Boosey manages profits of pounds 9.5m this year, the rating remains rich on a forward price/earnings ratio of 24. Hold.

Watts Blake taps into strong market

Bathrooms are one of the earliest signs of a developing country's move towards prosperity and as a result the market for ball clay, the raw material for sinks, toilets and tiles, is growing at a useful lick in many parts of Asia and South America.

One of the biggest beneficiaries of that trend has been Watts Blake Bearne, the world leader in this admittedly obscure niche.

Last year was actually disappointing for the company, with profits falling 5 per cent to pounds 10.7m and earnings per share sliding 8 per cent to 29.1p thanks mainly to flat markets in the UK and Europe, where the mature ceramics market is driven by replacements, not new build. In Germany, the second- largest division after the core Devon Clays, sales slipped 6 per cent, although cost-cutting measures helped profits buck the falling trend.

The maturity of those two main markets has led the chief executive, Graham Lawson, to conduct a strategic review of what the company is and should be doing. Just completed, that review has rightly decided to maintain the focus on the ceramics industry (it is growing well), to increase the worldwide reach of the company (away from low-growth Europe), to spend more heavily on research and development to keep ahead of the game technically, and to bring in fresh blood to maintain the momentum of what is now a genuinely global company, albeit small in stock market terms.

The net result of that evolutionary approach should be a year of recovery from last year's disappointment and a return to the steady growth Watts has experienced since recession combined with a difficult start to its North American foray to knock profits at the beginning of the decade.

Forecast profits this time of pounds 11.5m would imply earnings per share of 33p and a price/earnings ratio of 13 at yesterday's unchanged close of 435p for the thinly traded shares. That is a relatively undemanding rating for a company operating in reasonable growth markets and with the prospect of a bid from 49.5 per cent shareholder Sibelco of Belgium underpinning the shares.

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