The Investment Column: Colefax & Fowler

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COLEFAX & FOWLER, the textiles group which makes fabrics for curtains and sofa coverings, was nearing its all-time high of 126p yesterday. It bottomed out at 64.5p in January, having fallen victim to a widescale sell-off of smaller companies' stocks amidst worries over the continuing strength of sterling. The household goods sector was hit especially hard; 80 per cent of Colefax's sales are overseas. Colefax's steady recovery this year can be put down to the FTSE bull market - fund managers concerned about stretched ratings have few opportunities other than a return to the small-caps. Meanwhile, US value-investors have been piling in, sniffing a bargain. With the share price restored, investors should ask questions about Colefax's growth strategy.

In the short-term, Colefax will be focusing on extracting value from recent acquisitions in the US and on the Continent. It has added some fancy new fabrics to its portfolio and now has five leading brands. The strategy is simply to cross-sell the new and existing ranges. The UK market, which dragged down profits last year, is expected to pick up in September as the benefits of interest rate cuts feed through to the housing and interior decoration markets.

On the longer view, the group has amended its aim to become a leading global textiles business. It now plans to diversify its product range and move into accessories. It may even tie up with a partner offering it a distribution network in the right area.

Analysts expect pre-tax profits of pounds 5.3m and earnings of 12.8p per share this year. The shares, at 118.5p, are a snip.