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The Investment Column: Carpetright sales bounce back

Lord Harris of Peckham was working hard yesterday to restore confidence in Carpetright, the carpet retail group which he chairs. He had his work cut out, having sold a quarter of his holding in the business at 569p just months before the shares slid to a 435.5p low on fears it was over- expanding in a sticky market.

But full-year figures and upbeat comments on current trading helped, pushing the shares 37.5p higher to 478.5p yesterday.

Encouraging was Lord Harris's insistence that, far from a trading battle, there was plenty of room in the carpet market for more stores. With more than 70 per cent of the UK carpet market still in the hands of the independents and only one other big competitor - Allied Carpets - Carpetright has scope to increase its market share from the current 17 per cent.

Sales for the year to April rose 10 per cent on a like-for-like basis in a market growing at around half that rate. Moreover, Lord Harris reckons that even if the group's like-for-like sales growth slowed to 4 per cent for the next three years, as it has over the past seven weeks, the group will still hit its target of 30 per cent market share by 2000 and maintain margins.

As it is, most of the recent slowdown has been due to a dip in consumer confidence before the election and there are signs of a recent bounce in sales growth, which should be maintained by the housing market recovery.

That could mean higher margins over the next few years. What will also help are signs that the group is abandoning its cut-throat discounting policy for more sensible pricing.

Gross margins in the period lifted a healthy 3.4 percentage points to 49 per cent.

NatWest is looking for profits of around pounds 41m for the current year. On a forward p/e ratio of 14, the shares are cheap compared to the loftier valuation applied to Allied, but that is probably a fair valuation.