Investment Column: Slowdown leaves Moss Bros on the rack

S & U; Pantheon Leisure
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The Independent Online

Our view: Sell

Share price: 24.75p (-0.25p)

A look through the family photo album could in many cases be like looking at a Moss Bros catalogue through the years: high-school leavers' ball, graduation, wedding, christening and so on. That irks chief executive Philip Mountford. He says recent surveys show that 90-odd per cent of people recognise the group as a suit-hire company, when in fact it is the biggest seller of branded suits in the UK. Marketing men from the all-conquering Tesco have been brought in to address the problem.

People's perception of what the group does may be the least of its problems. The fact that Moss Bros is a retailer should already have the alarm bells ringing, even if Mr Mountford purports to be happy with the interim numbers published yesterday, showing a small fall in profits and sales.

There are reasons to be cheerful:retailers are approaching their busiest time of the year, the group is undertaking a refurbishment that will hopefully attract the punters, and the majority of the management is new, bringing in fresh ideas. However, none of this outweighs the fact that most retailers are struggling – and that is even before the economy gets into a recession.

Watchers at the house broker, Altium, point out that the group is undervalued. "Given Moss Bros' strong financial position, it is reasonable to assume it will be around to enjoy the next upswing," they say. "Other valuation approaches also point to a target price substantially higher than the share price. The full year 2009 net asset value is 50p. Even if one eliminates all fixed assets from the calculation to avoid attempting to justify valuations on fixtures and fittings, the adjusted asset value is 30p."

That may be true, and if it's retailers you are after, Moss Bros is at least as good as the others, especially as it has decent cash levels and because itsfranchise business operates at thealways less-affected luxury end of the market. The truth is, however, that if you do not need retail stocks, do not touch them. Sell.


Our view: Cautious hold

Share price: 365p (+32.56p)

Anyone who has spent the past 18 months on Mars might not be aware that there has been something of a problem with sub-prime lending, and that the basic issue is simple enough. People who do not earn a lot have taken on more debt than they can afford to pay back. With this in mind, investors could be forgiven for not being too enthusiastic about a group that does door-to-door loans for people who may struggle to get credit elsewhere.

S&U may surprise them. Thecompany issued interim numbersyesterday, which showed that pre-tax profits were up by 7.5 per cent to £5m, with revenues fairly flat. The market was certainly impressed, with the stock closing the day up 9.8 per cent.

Conservatism is the watch-word, and the group says that it will not go in for any of this self-certification stuff and requires lots of evidence of income. The fact that the group's sales representatives know the individual clients helps, and with only 10 per cent of applications being approved S&U is certainly being choosy.

Analysts at broker Charles Stanley are keen: "Buy," they say opining that the shares will reach the heady heights of 500p. "While there are likely to be lingering concerns over the impact of the slowing UK economy, and in particular the risk of a significant increase in unemployment, we continue to view the shares as undervalued, with its main comparator – Provident Financial – much more highly rated despite having a lower yield and dividend cover."

All this is true, even though investors should note that Provident Financial is a much bigger company. Buyers should also note that revenues at S&U were flat compared to the same period last year and, with the economyundoubtedly heading south, they may want to avoid the credit industryaltogether. Cautious hold.

Pantheon Leisure

Our view: Cautious hold

Share price: 0.9p (+0.05p)

Most people have nostalgic memories of football in the park with jumpers for goalposts and so on.

Pantheon Leisure aims to modernise the experience for today's children by providing modern five-a-side leagues for kids and adults, as well as organising other activities, such as summer camps and school sports.

The group admittedly postedencouraging interim numbers yesterday, showing pre-tax losses narrowing to £89,000 from £155,000 last year. The problem is, however, that during a downturn people cut back their spending on leisure activities. The company says plenty of its revenues come from the public purse ,with schools using Pantheon to run its sports lessons. But companies depending on concessionary spending tend to suffer most in a downturn. Cautious hold.