Investment Column: Go for bicycles, if you must hold retailers

May Gurney Integrated Services; Powerleague Group
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The Independent Online

Our view: Hold

Share price: 272p (+16p)

Back in the 1980s, then-Cabinetminister Norman Tebbit famously told the unemployed to "get on yer bike" and look for work. If the currenteconomic downturn continues, thisadvice might become relevant again. While this would undoubtedly be bad news for those who find themselves without a job, it would be good news for cycling retailer Halfords.

The theory suggests that companies like Halfords do just fine in a recession as people leave their expensive-to-run cars at home, especially with fuel prices at historically high levels. The group said in a brief trading update yesterday that sales are up and that the company will hit its half-year targets. On what was generally a good day for the FTSE 250, Halfords' shares were up an impressive 6.25 per cent.

In these markets however, it takes a brave pundit to advise a "buy" on aretailer. Despite yesterday's good performance, Halfords' shares have lost 30 per cent of their value in the last year. Analysts at Killik Capital reckon that of all the retailers, Halfords is one of the best. "If investors feel the need to hold a retailer, Halfords, trading on a price-earnings ratio of nine times, is better placed than most, given its dominant market positions and counter-cyclical revenue streams," they argue.

Others are less generous. Watchers at Landsbanki argue that "whileHalfords does have some defensive characteristics, this thesis seemslikely to be tested over the next year, and above- average operational andfinancial leverage is unhelpful".

If it is retailers you are after, Halfords is at least as robust as any other.However, in these markets it is difficult to construct a solid case for investment. Hold.

May Gurney Integrated Services

Our view: Hold

Share price: 205p (+10p)

In these markets, the message that nearly every company is trying to put out is that it is a defensive option forinvestors worried about their punts on riskier stocks.

In many cases this is just PR nonsense and buyers should ignore it as spin. In the case of May Gurney, the group that operates maintenancecontracts largely for public-sectorcustomers, that message might not be entirely bluster. The company, which issued an on-target trading updateyesterday, says that defensive is the name of the game and investors cannot find a safer bet in town. Yes, they say, capital projects from government might go in a downturn, but the chances of local authorities shelving maintenance work are remote.

Before investors jump headlong into the stock, however, they should note that despite the claim to be a defensive stock the shares are down nearly 40 per cent in the last 12 months. While that does not make it the worstperformer, it is not really what one could consider safe either.

Chief executive Philip Fellowes-Prynne says May Gurney is the victim of poor sector sentiment and that in the past the shares were anyway overvalued. Now, however, they should be 20p to 30p higher, he says. On the numbers and the kind of work May Gurney does, Mr Fellowes-Prynne is probably right, but even he concedes that an economic meltdown would be damaging.

Watchers at house broker Altium reckon there are plenty of reasons to buy the shares, based on fundamentals. "Following peer group share price declines, we trim our price target from 321p to 293p, which still implies 40 per cent plus upside," it said. Thishowever, does not factor in market sentiment. Unless May Gurney, which is a solid company, can differentiate itself, the shares will continue to underperform. Hold.

Powerleague Group

Our view: Cautious hold

Share price: 33p (-0.50p)

Powerleague's numbers yesterday were the results of two halves. The group, which runs five-a-side football centres, said that revenues were doing very well, up more than £3m to £26.3m. Pre-tax profits on the other hand were flat, at a touch under £5m.

Despite the uninspiring profitnumbers, executive chairman Claude Littner declared himself pleased with the full-year performance, saying the group's acquisitions are going great guns and that even in a downturn, people continue to play football, either in private leagues or as part of an after-work jolly.

Investors, however, will be as sick as a parrot. Mr Littner says he "cannot fathom" why the share price has dropped by nearly two thirds in the last 12 months, but says that with the stock at an all-time low, now is the time to buy.

Investors, however, should be wary. The reason for the loss of value, as Mr Littner himself alludes to, is because Powerleague is associated with a raft of underperforming Aim-listed stocks.

Cautious hold.

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