The Investment Column: Ted Baker fashion chain is well placed to ride out the storm

Cineworld; Melrose Resources
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The Independent Online

Our view: Hold

Share price: 411p(unchanged)

The economy might be teetering on the brink, with consumer confidence on the wane, but this does not seem to concern Ted Baker's chief executive, Ray Kelvin. He says that instead of having sleepless nights about things he cannot control, he would rather worry about the Ted Baker brand and developing the business.

Mr Kelvin expects to increase the number of employees this year. "Why would I want to be cutting costs and be mediocre, like everyone else?" he asks. Instead, he wants to concentrate on making "fabulous clothes".

The firm has expanded into high-growth markets such as Asia, with 17 new outlets, in the last year, and has also opened shops in China. The figures are impressive: pre-tax profits were up to £22.1m, an increase of £2m on the year before. Revenues were up 13.2 per cent to £142.2m.

On the downside, analysts disagree with Mr Kelvin about the risks facing his business; while most believe the company is in great shape, nearly all say that the economy will take its toll in 2008.

"Frankly, this is a horrible market: retail is to be avoided," says an analyst at KBC Peel Hunt, which suggests that its clients buy the stock, because relative to other retailers, Ted Baker has outperformed.

Others reckon that Ted Baker is well placed to tackle the troubled economy and should return good figures this year. "If clothing shoppers trade up to buy fewer, more select garments Ted [Baker] seems well positioned to ride out the storm on the high street," say watchers at Numis, which also recommends a buy and reckons that the share price has the potential to increase by another 130p or so.

Investors with a nervous disposition should probably avoid Ted Baker. If the world's financial crisis deepens, every retailer will be hit, irrespective of how great their brand is. But for those hoping to pick a winner in troubled times, Ted Baker could be it. Hold for now.


Our view: Buy

Share price: 130p (-1p)

When Steven Wiener was drawing up plans to open Cineworld with his wife in 1994, he says he could not imagine ever having 45 million people a year walking through the doors of his cinemas. And it is this growth in the number of people attracted to Cineworld outlets, which Mr Wiener claims are the most modern and technologically advanced in the land, that has analysts swooning.

Most consumer-focused companies depend on a prosperous economy; but not so cinemas, it would appear. The company claims that in times of financial misery for other industries, cinemas benefit by being one of the cheapest forms of entertainment around, and so long as the list of films is appealing to punters, there will be no problem in getting them in for an escapist experience.

Cineworld published its first set of annual results as a public company yesterday, showing pre-tax profits of £25.7m, versus a loss of £7.7m in 2006; box office revenues were up 7.7 per cent to £18.7m. "Trading in 2007 was very good and was better than initially estimated," say Cazenove analysts, who advise customers to buy the stock.

Much of the favourable comment is based on the list of films set to hit the screens in 2008. James Bond, Star Trek and Indiana Jones are all expected to draw in customers, and according to Mr Wiener, this is the most important factor in ensuring good numbers. "This industry is product-driven," he says, saying that while a nasty full-blown recession would have an adverse effect on his business, it is bad movies he fears the most. Buy.

Melrose Resources

Our view: Buy

Share price: 330p(unchanged)

All oil and gas exploration businesses rely on a bit of good luck, which Melrose Resources seemed to lack last year after drawing a blank trying to extract profitable amounts of both in Bulgaria, costing the group between $50m and $60m, reckon analysts. But 2008 has the prospect of being a much better year. The group has spent more of its time working in Egypt, a country it has a sounder knowledge of. Two of its sites in the country began pumping out oil and gas last year, but the benefits will only be felt financially in this year's figures.

The company is drilling holes in several other locations in the Nile Delta, hoping to find more. They think that 32 per cent of the drilling will yield results.

Analysts are happy that the group has written off its Bulgarian losses. They say that the firm has benefited from the high oil price and has been bright in increasing its activity in that market. "Melrose is adopting the correct strategy with regard to exploration, and we remain optimistic about the prospects for further success on this front during 2008 and beyond," say watchers at Brewin Dolphin. There is also cheer that Melrose is well hedged against movements in commodity prices; it has contracts that fix the price of its gas and calculates oil revenues using a price at more than 30 per cent less than the market value. Buy.