Still much for Thorn to do

Investment Column
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The persistent chatter in the City that the sum of Thorn EMI's parts is worth considerably more than the whole has been good news for the share price in recent weeks, despite the fact that the chairman, Sir Colin Southgate, remains as inscrutable as ever on the subject.

The 20 per cent rise in the price over the last two months has been good news for investors, who have watched their shares underperform the market by 10 per cent during the 10 years of the company's transformation from lumbering behemoth to a business sharply focused on music, rentals and record shops.

That long-term drift is something of an injustice, given the results of the refocusing. Figures for the year to March, announced yesterday, showed a 23 per cent rise in underlying pre-tax profits from pounds 344m to almost pounds 424m. Anything less than a 20 per cent increase to pounds 510m this year, and a further 12 per cent in 1996/97, would be disappointing.

The easy solution to overcome the frustration of an unappreciative stock market would be to demerge, and a sale to Disney of the EMI music arm has gained some credence. However, to do so now could mean investors missing out on an even higher premium to the share price - up 8p to 1218p - than the 25 per cent currently being touted.

There is too much business to go for to justify a hasty unlocking of shareholder value. Rentals is only established in 22 countries, EMI is in 42 and HMV has a tiny 1.8 per cent of the world's retail music business with 201 stores.

Moreover, commercial exploitation of new electronic technologies such as CD-Rom, and the rent-to-buy market for personal computers, has yet to begin in earnest.

Having outperformed the FT-SE 100 by 4 per cent since the beginning of May, the shares now trade on a prospective price/earnings ratio in excess of 17 and yield 4 per cent, assuming dividends will be increased from 36.5p to 38.5p.

That is a fairly full price, but with good earnings growth in prospect and the speculative froth of a demerger unlikely to go away, the shares are well supported.