Smaller Companies: Rhino a promising play for the long-sighted

Click to follow
The Independent Online
THE big guns in the City's broking community are beginning to take a shine to Rhino Group, the video games retailer.

Goldman Sachs, the securities firm, has just published an in-depth circular recommending Rhino as offering potentially high rewards for long-term investors.

Although the shares are speculative, Rhino is the first company to be featured in Goldman's newly set up research service into fast-growing companies in Britain and the Continent.

The analyst Charles Elliott says he will be disappointed if the shares do not jump by at least 50 per cent this year. At 25p they are already trading at more than 50 times prospective earnings. But hopes are running high that Rhino will grow rapidly in the next few years, reducing the earnings multiple to single digits.

The company was really launched last September, when Bev Ripley and Terry Norris, former directors of Cityvision, the Ritz video hire shops operator, took control of JMD Group.

They hope to repeat their success at Cityvision - which was taken over by Blockbuster of the US last year - by developing a chain of specialist shops for video games software and hardware.

Goldman Sachs estimates that only 15 per cent of all British homes currently own video games (compared with more than half in the US and Japan) and that ownership will rise sharply.

The British market is largely served by big retailers such as Woolworths and Dixons, but there is a belief that many consumers would prefer specialist shops offering wide choice, knowledgeable staff and extensive facilities to try out new products.

However, the venture is high-risk as it is at an early stage. Rhino currently operates five shops, but plans to open one a week this year, to be funded from a pounds 4m rights issue.

There is also a danger that the present fad for games may weaken, or that fierce discounting by competitors could check Rhino's growth. Demographic trends also suggest there will be a significant fall in numbers of young people in Britain over the next 10 years.

That said, the company has got off to an encouraging start. Mr Ripley says that sales before Christmas and immediately after were ahead of internal forecasts.