Somerfield still has problems

The Investment Column

It is hardly surprising that Somerfield laid low for almost six months after what proved to be one of the most fraught new issues of recent times. David Simons and his fellow directors probably limped back to their Bristol headquarters severely bruised after their experience, if several million richer.

The cut price float was such a debacle that it made it all the more crucial that the company did not disappoint with yesterday's maiden set of results as a public company. Mr Simons even started his presentation with a slide showing the slogan "delivering the goods".

This was only partly the case. Though half-year profits of pounds 54.6m were in line with expectations and the margin increase to 3.4 per cent was also good news, the longer-term prospects still look poor.

The most worrying sign is the group's like-for-like sales performance, where sales in the six months to November were just 1.7 per cent ahead of the same period last year. With food price inflation running at just over 2 per cent, that represents a fall in real terms.

The problem is that though management tries to focus attention on the core Somerfield format, where sales were 4.3 per cent ahead, it is still being dragged back by the under-performing tail of old Gateway stores and the Food Giant discount format. Sales are falling off a cliff in both.

Dig beneath the surface and other problems emerge. Though the conversion of Gateway shops to the Somerfield format yields double-digit sales gains in the short term, they soon evaporate. Mr Simons admitted yesterday that in some of the original Somerfield conversions sales have started to go into reverse. For a company that is hoping to drive profits through higher sales that looks extremely worrying.

To be fair to Somerfield, it is doing some of the right things. It is moving towards higher-margin fresh foods and its Europartners buying consortium is helping keep costs lower.

Mr Simons is talking about home shopping trials and financial services but the fact is that rivals such as Tesco and Sainsbury are further ahead, have stronger brands and more funds. Somerfield is always going to be running to catch up.

Shareholders who were bold enough to apply for Somerfield shares last summer eventually got a very good deal at 145p. Though the shares dipped 5.5p to 168.5p yesterday, investors are still looking at a near 10 per cent gain. But that was the easy part. Further advances will be harder to achieve.

Brokers were shading down their full-year profit forecasts yesterday to pounds 100m this year and pounds 105m next. This puts them on a forward rating of just seven.

Braver souls may want to follow fund managers like PDFM and hold on for the long, long term. But it will be a stressful experience. Others should sell.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
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

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral