Investment Column: Carpetright's case is looking threadbare

Laird; Atlantic Coal
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The Independent Online

Our view: Cautious hold

Share price: 561p (-37p)

The investment case for Carpetright, the carpet retailer run by Lord Harris of Peckham, is beginning to look a bit threadbare.

The group issued its preliminary results yesterday saying that everything good – profits, revenues and the dividend – was down, while those nasties like debt and redundancies were all up, making for pretty uncomfortable reading for investors. The biggest problem, however, is that Lord Harris does not see any improvement for at least 12 months. Although he argues that falling interest rates and fuel prices have put more money in people's pockets, the expected increases in the unemployment rate in the coming months, and its effect on the crucial housing market, does not bode well.

Anyone expecting to find his Lordship downbeat would be surprised, however. After 51 years selling carpets, he reckons the industry is the first to recover from a recession, and with competitors on the high street, especially Allied Carpets, continuing to struggle, Carpetright is taking market share, he says. Add that the group is making inroads into becoming a supplier to the insurance and housebuilding industries, albeit at lower margins, and the company is in good shape.

As an investor, you pays your money and takes your chance. No doubt Carpetright is the most impressive business in its sector, but do you really want to invest in a group that yesterday put out frankly woeful numbers and that concedes it will be at least another 12 months before anything gets better? The analysts' opinion ranges from KBC advising clients to jump in on the expectation that the group will perform well in the coming months against weak comparatives, and that the share price will rise to 650p, to the Altium watchers who say the stock is too expensive and that punters should sell.

We do tend towards the Altium view, especially having watched the share price grow by nearly 50 per cent in the last quarter. We would hold on, however, on the expectation that Carpetright will pick up significant slices of market share in the coming months. Cautious hold.


Our view: Sell

Share price: 155p (-27p)

Shares in Laird, the group that makes components that reduce interference between electronic devices, issued a trading statement yesterday which sent the stock down 14.8 per cent. Investors were clearly worried by the admission that "our business has been affected by the challenging macroeconomic conditions and supply chain de-stocking in the second half of 2008 and which have continued through the first half of this year. In the first half of 2009, like-for-like revenues are expected to have declined by some 35 per cent on a constant currency basis compared with the very strong first half of 2008."

Sadly for those wanting reassurance that all is fine, and despite inviting calls as part of the stock market announcement yesterday, the group's chief executive and finance director were on flights all day and not able to comment on the update, despite shareholders losing money.

Analysts at the house broker, Cazenove, stoically did their best, coming to the conclusion that the group would "outperform" because "we believe that more positive updates from other companies in the sector will mean some investors will be prepared to look through today's update in anticipation of recovery". This was despite the watchers describing the trading update as "disappointing".

We would think that a punt on Laird is something of a step in the dark and, with little guidance on when things might improve, we cannot think of a reason to buy the stock, especially having seen it get more expensive in the last three months. Sell.

Atlantic Coal

Our view: Buy

Share price: 0.6p (-0.05p)

Numbers wise, it was not a great year for Atlantic Coal, the group that mines in Pennsylvania. Losses were up, while production and revenues were down. Demand from its major client, the steel industry, also dropped off.

Its finance director, Greg Kuenzel, argues that the group is actually performing well given that the mine went off-line for periods of the last 12 months, a problem he says is now behind the company. Extra demand from the domestic market, new finds at the site and expansion plans are all reasons to buy the shares, he reckons.

Analysts at broker Fox Davies reckon the stock should trade somewhere close to 2.5p. While we are not convinced that the shares will scale those dizzying heights in the next year, we do agree with Mr Kuenzel when he says the shares are undervalued. Yes, there are all the risks associated with buying something so small, but we reckon Atlantic Coal is worth a punt. Buy.