Majestic reigns amid gloom on the high street

Investment View

Are there any shops you'd want to be investing in rather than spending in over the Christmas period? Outside the supermarkets that is? They're hard to find. Every trading statement from every retailer these days describes trading as "challenging" and it's not hard to see why.

The consumer will be feeling the effects of austerity for some time to come, and competitive pressures remain brutal not least because of the internet, which poses a problem that many traditional chains are still grappling with.

Even in the good times the industry has a cyclical character. Calling when a chain is going to be in fashion with consumers and investors is never easy.

All the same, there are a couple of stores worthy of your attention, the first being the wine retailer Majestic.

It's simply impossible to ignore yesterday's results. There's been a grim toll of failures among wine merchants. Supermarkets cater for the mass market while those looking for advice on more rarified tipples dubbed "fine wine" tend to gravitate towards specialists at the top end. Those in the middle have been squeezed.

That where Majestic sits, and unusually it requires you to buy six bottles. It's not the place to head for on impulse if you want a good red on a Friday night to console yourself after a bad week.

Oddly enough, though, the formula is working stunningly well. For the six months ending 1 October pre-tax profits increased to £9.2m, up 4 per cent. Total sales eased back 1.4 per cent to £126m, but that's explained by the company pulling out of the wholesale trade – very big sales usually of excess stock – to concentrate on fuelling retail growth. The world wine harvest has been poor so this makes sense, and offers much better margins (wholesale shouldn't be confused with the commercial channel such as pubs and restaurants, where sales are buoyant).

The shares are not cheap, at 16 times full-year forecast earnings, albeit with a solid 3.7 per cent prospective yield. But I would be inclined to buy. A business that can do so well in a difficult economy ought to really motor if there is even a mild improvement.

The next high street winner is in a very different market and Primark is not a company in which you can actually invest directly. It's a part of Associated British Foods.

In November the group reported pre-tax profits of £761m for the year to 15 September, virtually unchanged on the previous year. But "adjusted" operating profit, which strips out various accounting quirks and one-offs with the aim of giving a better picture of how the business's trading operations are performing, turned in a rise of 17 per cent to £1.1bn.

One reason for that was Primark, which achieved sales growth of 3 per cent at stores open for at least a year, with overall revenues up 15 per cent to £3.5bn.

That's not to be sniffed at but if you're going to invest in Primark you'll have to hold your nose. Selling clothes as cheap as it does means the people who make them in parts east of here aren't paid too well. War on Want has been a notable critic although Primark has been touting its commitment to ethical trading on its website.

Sadly, ABF shares are as pricey as Primark's clothes are cheap. They are trading close to a 10-year high at 15 times the year's forecast earnings, with a modest yield of just over 2 per cent. But if you have the shares, hold them. Otherwise look to buy on weakness, although with the relentless rise of Primark I don't expect to see much of that anytime soon. With a few exceptions (see above) discounters and supermarkets are the place to be if you're investing in retail stocks.

To prove the point about discounters look at how well Sports Direct has done. Its colourful founder, Mike Ashley, means controversy is rarely far away. But the shares have been powering ahead. When I last looked (on 7 September) they were at 330p. It won't be long before you'll be sitting on a 20 per cent gain if you followed my advice to hold and I would stick with it.

Finally, a sneaky one. Games Workshop has made the occasional mistake down the years, and it isn't very cheap at 14 times forecast earnings for the year ending 31 May. But just look at the number of kids hanging out in its stores and you'll see why it's a winner.

Despite the lure of computer games, there is still a surprising appetite among a certain group of teenagers for painting metal figures and playing war games with them. So it should enjoy stable revenues (which should alert income seekers – prospective yield of 6.5 per cent).

It will also be making products related to The Hobbit, a film whose release is rather keenly anticipated.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence