The Investment Column: Carpetright floored by retail slowdown

AG Barr; Et-China


Our view: Sell

Share price: 637.5p (-64p)

"I'm an optimist!" declares Lord Harris of Peckham, the chairman and chief executive of Carpetright.

A good job too. Investors' optimism may be falling with the stock, which has dropped by the best part of 40 per cent in the last 12 months. The problem for the company, which the boss himself acknowledges, is that the macro situation is awful.

A number of the analysts agree and advise that clients run for the hills. The company issued a short trading update yesterday affirming that the market is as difficult as it has ever been, which prompted those at Panmure Gordon to say: "It could just be that this statement coincides with our growing belief that the ramifications of events in the financial markets will be severe for the next few months' retail spending, but we believe that this statement, while saying precisely nothing new, should lead to analysts that are at or above pre-tax profit consensus for the year of £46m to get their red pens out. We are on £40m and are moving the shares from hold to sell."

However, investors might not give up entirely on the group. There is a body of opinion that suggests that in a downturn, people improve their existing houses rather than move. Given that the average spend at Carpetright is between £100 and £300, Lord Harris believes the group will bounce back as soon as economic health returns, in about 12 to 18 months, he says.

However, that may be scant consolation for investors who buy now. The problem is that things are tough now, watchers at Kaupthing reckon, "We have a price target of 570p... on the basis that it was trading on a price earnings ratio of 14.4 times or 7.8 times enterprise value to Ebitda." Sell.

AG Barr

Our view: Hold

Share price: 1003p (-94p)

It is said in Scotland that Irn-Bru is a more popular soft drink than coca-cola, which may well be true, and in commercial terms, the drink's popularity is doing AG Barr no harm at all.

The group issued its interim results yesterday showing a 9.8 per cent hike in pre-tax profits to £11.1m (albeit against another bad summer in terms of weather), while the company has also been able to keep its margin in check, despite ever increasing input costs.

Indeed, all the evidence points to the fact that the company is in rude health. Even the outlook bit of the statement is upbeat, with the group saying it is on track to meet its full-year target.

However, despite all this good news, investors would be wise to think twice about buying the shares. The Investment Column last looked at the company at the start of April when we said that readers should buy the shares at 1165p, believing that the good news would push the stock north. Despite there being little change in the news flow the shares have fallen, including by a drop of 8.6 per cent yesterday.

Analysts at Investec argue that: "We also leave our target price at 1300p, despite market conditions; this represents 1.5-2 points enterprise value to Ebitda premium versus the rest of the sector, supported by the group's branded nature and good track record of delivery." Buying anything at a premium is risky, especially when the group's stock has dropped from 1195p to its current level in just two weeks. That is largely due to what has happened in the wider market, but investors need to be cautious. Hold.

Et-China

Our view: Buy

Share price: 78p (-23.5p)

Bad news is like London buses, with lots of it seemingly coming all at once for Et-China, a travel company that specialises in providing flights, hotels and tours in southern China.

According to every sage, China is booming, ergo, a company like Et-China should be doing likewise. Well, not quite. The group published its interim results yesterday, which showed that pre-tax loses had widened to RMB19.9m (£1.58m), from RMB19m last year. Not a great deficit, granted, but analysts at house broker Investec say that while the group should be profitable in the second half of the year, the amount will not be as high as previously thought. Severe weather, the earthquake in Sichuan and heightened security measures for the Beijing Olympics all hindered the group.

However, these are largely one-off factors and the company is fundamentally heading in the right direction. The Chinese government are extending the list of places its citizens can travel too (including recently the US), the drop in demand seen in Europe for air travel has not materialised in China and the group's revenues are soaring.

There are other risks of course, the Aim market is volatile and some very good companies are being punished by investors for no good reason, but Et-China is a strong player in what is a market that has the potential to boom. Buyers should be cautious, but with the stock falling a massive 23.2 per cent yesterday, now might just be the time to buy. Buy.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: DBA Developer - SQL Server

£30000 - £35000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Customer Service Administrator

£13000 - £15000 per annum: Recruitment Genius: Are you passionate about custom...

Recruitment Genius: Dialler Administrator

£22000 - £25000 per annum: Recruitment Genius: Main purpose: Under the directi...

Ashdown Group: Contracts Manager - City of London

£35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...

Day In a Page

Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen
RuPaul interview: The drag star on being inspired by Bowie, never fitting in, and saying the first thing that comes into your head

RuPaul interview

The drag star on being inspired by Bowie, never fitting in, and saying the first thing that comes into your head
Secrets of comedy couples: What's it like when both you and your partner are stand-ups?

Secrets of comedy couples

What's it like when both you and your partner are stand-ups?
Satya Nadella: As Windows 10 is launched can he return Microsoft to its former glory?

Satya Nadella: The man to clean up for Windows?

While Microsoft's founders spend their billions, the once-invincible tech company's new boss is trying to save it
The best swimwear for men: From trunks to shorts, make a splash this summer

The best swimwear for men

From trunks to shorts, make a splash this summer
Mark Hix recipes: Our chef tries his hand at a spot of summer foraging

Mark Hix goes summer foraging

 A dinner party doesn't have to mean a trip to the supermarket
Ashes 2015: With an audacious flourish, home hero Ian Bell ends all debate

With an audacious flourish, the home hero ends all debate

Ian Bell advances to Trent Bridge next week almost as undroppable as Alastair Cook and Joe Root, a cornerstone of England's new thinking, says Kevin Garside
Aaron Ramsey interview: Wales midfielder determined to be centre of attention for Arsenal this season

Aaron Ramsey interview

Wales midfielder determined to be centre of attention for Arsenal this season
Community Shield: Arsene Wenger needs to strike first blow in rivalry with Jose Mourinho

Community Shield gives Wenger chance to strike first blow in rivalry with Mourinho

As long as the Arsenal manager's run of games without a win over his Chelsea counterpart continues it will continue to dominate the narrative around the two men
The unlikely rise of AFC Bournemouth - and what it says about English life

Unlikely rise of AFC Bournemouth

Bournemouth’s elevation to football’s top tier is one of the most improbable of recent times. But it’s illustrative of deeper and wider changes in English life
A Very British Coup, part two: New novel in pipeline as Jeremy Corbyn's rise inspires sequel

A Very British Coup, part two

New novel in pipeline as Jeremy Corbyn's rise inspires sequel
Philae lander data show comets could have brought 'building blocks of life' to Earth

Philae lander data show comets could have brought 'building blocks of life' to Earth

Icy dust layer holds organic compounds similar to those found in living organisms