The Investment Column: Hang on to your top hats as retailer Moss Bros smartens up its act at last

Careforce has disappointed with its first results, but there is a silver lining - WS Atkins is a solid buy after return to its roots
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Philip Mountford certainly suits Moss Bros. Under the chief executive, who has been in situ (suitu?) for more than a year, the gentlemen's outfitter has buttoned down its hatches and sales have soared higher than its own top hats.

Philip Mountford certainly suits Moss Bros. Under the chief executive, who has been in situ (suitu?) for more than a year, the gentlemen's outfitter has buttoned down its hatches and sales have soared higher than its own top hats.

All three of its businesses - Moss, Boss and Gee - are firing on all cylinders. Unlike at most of their high street rivals, trading there has got better, not worse of late. Like-for-like sales across the group have risen 6 per cent during the past 10 weeks.

At £5.5m, the company's second year of pre-tax profits was a fraction better than expected. The rise was driven by a 9 per cent jump in underlying sales and a 2 percentage-point gross margin gain. Mr Mountford is getting better terms from his suppliers and promoting more wisely, which means there should be further gross margin improvement to come.

The group is splashing its cash on smartening up its stores, as well as its balance sheet - with good effect. By the end of the year nearly all of Moss's 102 stores will have been refurbished, as will a handful of Gee outlets. Other initiatives include franchising its profitable suit-hire business and pushing Moss further into casualwear. Mr Mountford will be mindful that the last time the group attempted to embrace the dress-down revolution, it ended in tears and a protracted takeover attempt.

In fact, this company seems destined to be embroiled in bid speculation. First it was Shami Ahmed, the jeans entrepreneur, stalking the group. Now it's Kevin Stanford, the man behind Karen Millen. Moss Bros's board is conscious of the links between Mr Stanford and the acquisitive Icelanders, Baugur, so keeps a close eye on the stake its new biggest shareholder has built.

But with the group performing so well, the actual prospect of a bid is more unlikely by the day. Chances are Mr Stanford will conclude that the current management is doing as well as anyone can in turning around this business.

Of course, Mr Mountford is facing a worsening consumer environment, which could put people off splashing out on pricey new suits. If this happens, his attempts to boost casualwear from about 12 per cent of sales to nearer 20 per cent could be a wise move.

Although the more bullish analysts were flagging the scope for profit upgrades as visibility improves, we tend to think that the shares, which have doubled since this column advised tucking some in your drawers a year ago, look fairly valued at about 16 times earnings. Hold.

Careforce has disappointed with its first results, but there is a silver lining

Very low unemployment in Essex. This was the reason given for a maiden profits warning from Careforce, the home helps company which floated in November.

The company has just taken on new block contracts to supply home helps for the local authorities of Essex, but it proved tough to recruit locally. Instead, Careforce had to find, bring over and train nursing staff from Eastern Europe, all at unexpected expense.

This a really disappointing start for the company, and the shares were punished yesterday, down 7.5p to 143p, although they remain significantly above the 106p float price.

And there is a silver lining. The cock-ups in Essex sprang from there being much more demand for Careforce's services than either it or the authorities expected. Longer-term, that means more income.

The story remains intact. Demand increases are inexorable as the population increases. The preference is for care in a person's own home. Local authorities are under pressure to outsource to the private sector. Founded by Mike Rogers, who ran Nestor Healthcare for 20 years until 1995, Careforce has acquired a dozen small firms, and aims to be a consolidator of the sector.

With earnings set to double next year, the shares are worth buying.

WS Atkins is a solid buy after return to its roots

Life is never going to be entirely smooth for the engineering group WS Atkins, given the nature of its industry. That is because it is often dealing with the public sector and complex contracts, which can go wrong.

One case in point is rail and road work where, in a trading update yesterday, the company highlighted delays in the awarding of contracts. The US market is also challenging. A more newsy example is the giant contract to upgrade London's creaking Underground, which brings reputational as well as financial risk. Atkins has a 20 per cent stake in Metronet, the consortium that is doing much of the work.

Keith Clarke, the chief executive, has taken Atkins back to its engineering roots and ditched the disastrous diversification into facilities management and education services. The company has also got over its IT problems of 2002.

Atkins is now focused on planning, designing and aiding other companies' engineering projects and it is the biggest in Britain at this.

The company is confident that rail (20 per cent of revenues) and roads work will return in the medium term. But it is not clear when the US may rebound. Elsewhere in the group, conditions are good.

The trading update said the company would meet City expectations for the year to March 2005, putting to rest fears that rail problems would dent profits. Its shares closed up 4.4 per cent to 658p.

ABN Amro is forecasting earnings-per-share growth of 35 per cent for the 2004/05 year (all organic). That, along with the fact that Atkins trades at a discount to its peers, makes its shares a buy.

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