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The Investment Column: Courts wins overseas but needs home improvement

COURTS, the furniture retailer, is a strange beast. British consumers would think of it as principally a UK business, but it actually derives the bulk of its profits from overseas.

Last year the group delivered a characteristically bizarre performance, with a 7 per cent drop in profits to pounds 30m disguising some hugely volatile movements within the group.

The biggest setback was in Britain where profits fell from pounds 11m to just pounds 900,000. Behind the drop was declining consumer confidence, which has hit other furniture retailers hard as well. Margins fell as more attractive credit terms were introduced, and costs rose due to a heavy expansion programme that has not been reined back.

Elsewhere Courts has been going gangbusters. The Caribbean is its biggest profit-earning region; profits there rose by 34 per cent to pounds 22.7m. Like- for-like sales grew by an astonishing 21 per cent, even more startling given the political unrest in some parts of the region and hurricanes in others. Even South-east Asia did well, with good performances in Singapore and Malaysia.

Courts is looking to float off two regional subsidiaries, first the Malaysian operation and then Trinidad's. It is also looking for the key UK market to pick up as interest-rate cuts feed through to the market for more expensive consumer goods such as sofas and beds.

Like-for-like sales in the UK were down by 6 per cent last year but have recovered since April, thanks to a new press advertising campaign and keener deals on interest-free credit.

The shares shot up 35p to 382.5p on the results, well up from the 217p 12-month low in December. On current-year profit forecasts of pounds 34m the shares trade on a forward multiple of 16. That's about right.