The Investment Column : Thorn prunes prickly problems posed by Radio Rentals

Thorn has been such a dismal performer since last August's Thorn- EMI demerger that shareholders are probably grateful for small mercies these days. Shares in the Radio Rentals and Crazy George's retailer have halved from their 408p level immediately post-demerger, but yesterday bounced 10 per cent to 203p on news of a store closure programme at Radio Rentals and a shake-up of the US business.

The more hopeful move is the closure of 90 smaller, under-performing branches of Radio Rentals. It will involve a one-off cost of pounds 10m but should then yield savings of pounds 6m a year.

But the US strategy looks extremely optimistic. The US rentals market is so volatile that only 40 per cent of customers stay with their agreements for more than six months. This high churn rate - far higher than in the UK - saddles Thorn with costly collection and refurbishment bills it is willing to do almost anything to cut. The Holy Grail is customer loyalty and Thorn is bending over backwards to achieve it through discounts which are unbelievably generous. One scheme, called the "6/50" entitles anyone who remains loyal to Thorn for more than six months to a 50 per cent discount on their rental deal for the remainder of the contract. Though this will have a severe effect on margins, the company hopes to recoup the difference by winning more customers and persuading them to stay longer.

The difficulty for Thorn's management is that, although the market responded positively to yesterday's actions, they do not alter some of the key underlying problems facing the business.

The most serious is litigation against the company in the US, where several US states are claiming customers have been charged inflated interest rates in Thorn's rental agreements. Meanwhile, at home, Thorn is resigned to the introduction of the insurance premium tax, proposed in the last Budget.

This could cut pounds 10m from Thorn's UK profits as the sale of warranties to customers at the end of the rent-to own contracts has been a lucrative business. Add to this the impact of sterling's strength and weak trading both here and in America and it all adds up to sorry tale.

The US rentals market has fallen by 3 per cent on a like-for-like basis this year as cut-throat prices from electrical retailers mean customers can afford to buy their gadgets rather than rent them.

All this is a long way from the glitter that was promised when Thorn was decoupled from EMI, a business that is not doing too well either.

Back then some analysts thought Thorn's rather dull rentals business might prove more attractive than its more glamorous sister.

Assuming Thorn makes its full-year forecast of pounds 170m, the shares trade on a forward rating of less than 8. The low rating reflects the group's difficult position but the company's bruised shareholders are probably best advised to hold on for some kind of recovery.

Suggested Topics
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: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Day In a Page

Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most
Katy Perry prevented from buying California convent for $14.5m after nuns sell to local businesswoman instead

No grace of God for Katy Perry as sisters act to stop her buying convent

Archdiocese sues nuns who turned down star’s $14.5m because they don’t approve of her
Ajmer: The ancient Indian metropolis chosen to be a 'smart city' where residents would just be happy to have power and running water

Residents just want water and power in a city chosen to be a ‘smart’ metropolis

The Indian Government has launched an ambitious plan to transform 100 of its crumbling cities
Michael Fassbender in 'Macbeth': The Scottish play on film, from Welles to Cheggers

Something wicked?

Films of Macbeth don’t always end well - just ask Orson Welles... and Keith Chegwin
10 best sun creams for body

10 best sun creams for body

Make sure you’re protected from head to toe in the heatwave
Wimbledon 2015: Nick Bollettieri - Milos Raonic has ability to get to the top but he must learn to handle pressure in big games

Nick Bollettieri's Wimbledon files

Milos Raonic has ability to get to the top but he must learn to handle pressure in big games
Women's World Cup 2015: How England's semi-final success could do wonders for both sexes

There is more than a shiny trophy to be won by England’s World Cup women

The success of the decidedly non-famous females wearing the Three Lions could do wonders for a ‘man’s game’ riddled with cynicism and greed
How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map