Stoves puts the heat on Europe

One of the most important changes of the 1980s and 1990s for stock market investors is the increasing accessibility of firms to overseas markets. Companies which dominate the home market can no longer be written off as mature. On the contrary, their most exciting growth phases may just be beginning.

Two small companies with just such an opportunity are cooker-maker Stoves, at 324p, and war-game model maker Games Workshop, at 560p. I have written about both before. Games Workshop was 128p in January 1995 and Stoves 181p in June that year, but there should be plenty of growth still to come.

The timing of the first Stoves recommendation was less than perfect because sales were affected by the hot summer that year. But the problem was confined to the trading period to the end of November 1995; there was bumper growth in the next two half-years as a backlog of deferred orders brought strong sales growth. The company reports 43 per cent sales growth to pounds 39.8m, with profits up 57 per cent to pounds 2.4m, for the half to 30 November 1996.

Prospects look good in the UK, with market share still growing and scope for margin improvement based on hefty investment at the group's factories. Managing director John Crathorne believes that the group's share of the UK market is now around 18 per cent.

Rival cooker manufacturers are invariably part of larger groups without Stoves' focus on its core market. Margins have grown from minimal levels in the early 1990s to 6 per cent in the latest half year, and there is room for further improvement.

But the big opportunity is Europe. Stoves, which began life in its present form as a management buy-out of the struggling Valor business in 1988, has been spectacularly successful against European imports. It looks ideally placed to carry the attack to its rivals in their home markets.

The assault has been well planned. Stoves derives its competitive advantage in the UK not from low prices, but from high service and a flexible production system which delivers high quality and wide customer choice. In effect the company is able to customise cookers for configuration, colour, finish and trim.

After two years of market research the group is targeting the German and French markets, competing in the same way. Mr Crathorne is excited; Germans are keen to individualise their kitchens and cookers, making them suited to the Stoves approach.

However, he warns that success will not be instant. The group has been building its distribution network in Germany and this month launches the Stoves range, to be sold through a German company, Stoves GMBH, at Domotechnica, Europe's leading biannual white goods fair. If all goes to plan, by summer 1998 the group will be ready to start assembling cookers at its own plant in Germany targeting a market worth around pounds 1.5bn, three to four times the size of the UK. Further sales are likely in connected markets like Belgium, Denmark, the Netherlands and northern Spain. The move into France is some three months behind Germany in development terms.

The first major benefits from Stoves' drive into Europe should come in the financial year ending 31 May 1999. Meanwhile, analysts are looking for profits advancing from pounds 4.3m to pounds 5.9m this financial year and pounds 7m for 1997-98. This would drop the PE to around 17, with all the benefits from continental European sales growth still to come.

In contrast, Games Workshop is pursuing a formula already proven overseas. In the just-reported half to 1 December 1996, in which sales and pre-tax profits roared ahead by 41.6 and 51.4 per cent respectively to pounds 27.6m and pounds 4.8m, 63 per cent of sales were generated overseas. This compares with 55 per cent a year earlier and the trend should continue. Of 13 new stores opened in the period, three were in the UK, six in continental Europe, and one in Ireland, Canada, Australia and Hong Kong.

The scale of the markets being addressed shows that the company has barely begun to exploit the overseas potential. There is also scope in the US. In the half, US sales grew from pounds 3.1m to pounds 5.5m against pounds 8.1m for the previous year. Even with the strong pound, analysts are looking for full-year profits of pounds 11m against pounds 8.9m. A prospective PE of 25 is high by normal standards, but looks to be too low for this exceptional company.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
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: Mortgage Advisor - OTE £95,000

£40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...

SThree: Trainee Recruitment Consultant

competitive: SThree: Are you passionate about sales?Do you have a keen interes...

Recruitment Genius: Loan Adviser - OTE £30,000

£17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Day In a Page

Greece debt crisis: EU 'family' needs to forgive rather than punish an impoverished state

EU 'family' needs to forgive rather than punish an impoverished state

An outbreak of malaria in Greece four years ago helps us understand the crisis, says Robert Fisk
Gaza, a year on from Operation Protective Edge: The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas

Gaza, a year on from Operation Protective Edge

The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas
How to survive electrical storms: What are the chances of being hit by lightning?

Heavy weather

What are the chances of being hit by lightning?
World Bodypainting Festival 2015: Bizarre and brilliant photos celebrate 'the body as art'

World Bodypainting Festival 2015

Bizarre and brilliant photos celebrate 'the body as art'
alt-j: A private jet, a Mercury Prize and Latitude headliners

Don't call us nerds

Craig Mclean meets alt-j - the math-folk act who are flying high
How to find gold: The Californian badlands, digging out crevasses and sifting sludge

How to find gold

Steve Boggan finds himself in the Californian badlands, digging out crevasses and sifting sludge
Singing accents: From Herman's Hermits and David Bowie to Alesha Dixon

Not born in the USA

Lay off Alesha Dixon: songs sound better in US accents, even our national anthem
10 best balsamic vinegars

10 best balsamic vinegars

Drizzle it over salad, enjoy it with ciabatta, marinate vegetables, or use it to add depth to a sauce - this versatile staple is a cook's best friend
Wimbledon 2015: Brief glimpses of the old Venus but Williams sisters' epic wars belong to history

Brief glimpses of the old Venus but Williams sisters' epic wars belong to history

Serena dispatched her elder sister 6-4, 6-3 in eight minutes more than an hour
Greece says 'No': A night of huge celebrations in Athens as voters decisively back Tsipras and his anti-austerity stance in historic referendum

Greece referendum

Greeks say 'No' to austerity and plunge Europe into crisis
Ten years after the 7/7 terror attacks, is Britain an altered state?

7/7 bombings anniversary

Ten years after the terror attacks, is Britain an altered state?
Beautiful evening dresses are some of the loveliest Donatella has created

Versace haute couture review

Beautiful evening dresses are some of the loveliest Donatella has ever created
No hope and no jobs, so Gaza's young risk their lives, climb the fence and run for it

No hope and no jobs in Gaza

So the young risk their lives and run for it
Fashion apps: Retailers roll together shopping and social networking for mobile customers

Fashion apps

Retailers roll together shopping and social networking for mobile customers
The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy