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.


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
tennisLive: Follow all the updates from Melbourne as Murray faces Czech Tomas Berdych in the semi-final
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
Arts and Entertainment
Henry VIII played by Damien Lewis
tvReview: Scheming queens-in-waiting, tangled lines of succession and men of lowly birth rising to power – sound familiar?
Arts and Entertainment
'Salisbury Cathedral from the Meadows' by John Constable
Arts and Entertainment
Taylor Swift is applying to trademark song lyrics from 1989
musicYou'll have to ask Taylor Swift first
Joel Grey, now 82, won several awards for his role in Cabaret
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness