The Investment Column: Burton bows out on high

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The Independent Online
The City seems to like Burton's plans to spin-off its Debenhams department store business and the group's swansong results as a corporate entity yesterday added to the feel-good factor. Burton shares have perked up since the demerger was first announced in July. And though they are still well below their peak at the beginning of the year, there are signs that this is one demerger that is genuinely capable of enhancing shareholder value.

Full-year, pre-exceptional profits beat expectations with a 23 per cent increase to pounds 187m. News of current trading was also re-assuring, with sales in the 10 weeks since the end of August 8.5 per cent ahead. The gross margin, which has been the bedrock of the Burton recovery, firmed by 0.6 percentage points on last year.

On latest estimates the two businesses are worth a combined 160p following the demerger, with Debenhams valued at around 100p and the newly named Arcadia worth about 60p. This compares to yesterday's close of 139.5p, up 7.75p. Debenhams could even be worth 180p on some calculations. There was good news on costs too with the re-organisation of the multiples business set to achieve savings of pounds 10m-pounds 15m a year.

Sales last year were ahead in all brands with the ever-reliable Debenhams the best performer with a 10 per cent sales increase. But the profits figures show that there is work to be done in the multiples business. Though Dorothy Perkins, Evans and Top Shop/Top Man all did well, profits at Burton Menswear and Principles both fell. The opening of four Style Union stores, which include all Burton's menswear brands, may help as should the inclusion of the Hawkshead mail order division under the Burton Menswear umbrella.

A shake-up of the Arcadia portfolio is likely with the possibility of more Racing Green outlets and Hawkshead concessions to improve margins. The new home shopping catalogues look promising too.

On upgraded group forecasts of pounds 225m, the shares trade on a forward rating of 13. The fate of the shares depends on what John Hoerner, chief executive, can do with the multiples business. But his record looks worth backing.