The Investment column: GUS may be back in fashion

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The Independent Online
THE VALUATION of Great Universal Stores, the retail group that bought Argos last year, is a slippery matter. The shares hit a high of 911p last year, but later dropped to 549p. They have been particularly weak in recent weeks as GUS fell victim to the market's usual fears over the weakness of UK retailing.

GUS was silent throughout the fall, giving rumourmongers the chance to suggest that the results might contain warnings on current trading. In the event, however, the results could mark a turning point in sentiment towards GUS and bring stability to the stock and the group's valuation.

The principal reason for GUS's volatility is its status - as chairman Lord Wolfson of Sunningdale describes the group - as a conglomerate. With activities home and abroad spanning Argos, home shopping, Burberry, finance and property, there is considerable potential for bad news and worrying economic data to hit the stock.

But the diversified portfolio should not blind investors to the growth potential of the two main operations - the Experian consumer data business and the UK home shopping businesses.

The market warmed yesterday to continued progress at Experian - essentially a collection of sophisticated databases - which grew profits in each division and each region, and overall by 36 per cent to pounds 192m. Most of the growth came from the acquisition of Metromail in the US, but underlaying profits were 13 per cent up. Although Lord Wolfson admits there are few opportunities to grow Experian by acquisition, its role in driving GUS's returns is far from over. Seventy per cent of sales are in the US, and GUS now plans to expand in the rest of the world through partnerships with local players. The potential of this is considerable - establishing a rival database set would not only be very expensive, but impossible to do quickly.

The outlook for the UK retail arm is also positive. After a long silence, GUS has at last revealed its plans - accompanied by a timetable - for Argos. It is combining its catalogues into a single format and rolling out home shopping following successful trials. Argos Additions, a fashion catalogue, is to be launched in August, followed by a shopping service on digital TV.

There are still some niggles. A turnaround at the troubled Burberry is still some way off, and the South African businesses have suffered falling demand. The property portfolio doesn't really fit. In time, perhaps Lord Wolfson will sell these off, leaving a group with two strong businesses ripe for a value-enhancing demerger.

Analysts expect pre-tax profits of about pounds 540m and earnings of 40.6p this year. On sum-of-the-parts valuations, many estimate that the shares are worth about 800p; yesterday they closed up 33.5p at 654p. Lukewarm statements on current trading held back the rise, but investors should exploit the buying opportunity.