Investment Column: Don't buy Dixons – it has too many stores

Our view: Hold

Share price: 13.18p (+1.02p)

Dixons Retail gave its beleaguered investors a shot in the arm yesterday when it confirmed plans to pull the plug on its struggling Spanish business, PC City Spain. Although the exit will cost Dixons £30m, the City liked the news, and the stock rallied more than 8 per cent.

That said, Dixons' shares have slumped by more than 70 per cent in little over a year, which suggests the market is far from convinced by the recovery story narrated by John Browett since he became chief executive in December 2007.

The defence is that Mr Browett has exited struggling businesses in various countries, including Finland, Sweden and Poland; improved the service proposition; and invested heavily in its combined two-in-one formats, such as Currys and PC World in the UK. The group is also on track to make profits of about £85m for the year to 30 April, boosted by the Nordic region.

And yet, we remain wary, as we don't see much improvement in consumer spending across many European markets in the near term.

Moreover, while it trades at a discount to the sector, we think that, given the modest margins in electrical retailing, there are safer bets elsewhere. Above all, we think that Dixons, which has about 600 shops in the UK alone, needs to ditch large numbers of stores to streamline itself for an age where internet sales are heading in only one direction. Until then, we would not add to our holding.

Hamworthy

Our view: Buy

Share price: 524.5p (+22.5p)

Yesterday's trading update from Hamworthy underlined the investment opportunity. The company, which makes fluid handling systems for the shipping, oil and gas and industrial sectors, said orders had shot up by 38 per cent over the past 12 months, and now stand at £258m, with particular boosts from two major re-gasification orders and strong performance in the oil and gas and aftersales businesses.

The news sent the shares higher, though investors should note that the update contained a hint of caution regarding the shipping business.

"Whilst the volume of contracts and inquiries for products and systems has increased during the year, recovery in the wider marine new-build market is less consistent across ship types, and the sustainability of that recovery remains uncertain," it said.

The immediate prospects may be slightly tricky, but the bottom line is that Hamworthy's core markets have significant potential. Evolution Securities analyst Keith Morris expects a more positive outlook statement as soon as the full-year results due in early June.

We think it might be profitable to wade in ahead of that release.