The Investment Column: Hancock works wonders, but there's a hill to climb at MFI

JOHN HANCOCK, the former WH Smith director who was parachuted in at MFI earlier this year, has not wasted any time.

Within months of arriving at the retailer, which has never shaken off its wobbly wardrobe image, he has made great strides shoring up the listing edifice. The balance sheet has been re-constructed with a pounds 100m property sale and leaseback.

Yesterday, alongside a rebound to profit after last year's disastrous losses, he unveiled plans for a further pounds 25m to be raised from a similar deal on its distribution centres. This will be added to the pounds 37m received from the sale of the Hygena packaging arm, announced yesterday. All this makes you wonder what the previous management team spent the last umpteen years doing.

All Mr Hancock's good financial work has been under-pinned by an improvement in trading which saw a loss of pounds 25m improve to a profit of pounds 12m for the six months to November.

The key MFI stores were suffering a 12 per cent like-for-like sales fall in the first quarter. But that has improved to a 5 per cent underlying increase in the second quarter and helped the shares bounce 6.25p to 44.5p.

True, the furniture market has enjoyed a recovery since the summer but MFI has also re-launched its advertising to a more value-conscious approach and introduced new products including a new range of kitchens.

Mr Hancock intends to retain MFI's structure as an integrated manufacturer and retailer. But more emphasis will be paid to promoting the Schreiber and Hygena brands than the MFI name which can be more of a liability than an asset. Meanwhile Howden Joinery continues to grow, with a rapid expansion programme planned.

The cycle is in MFI's favour at the moment with interest rates relatively low and the housing market booming. That should give a further boost to the shares, as will the distribution system which was invested in heavily by the previous regime.

Big hikes in interest rates could spoil the party. But on Seymour Pierce's forecast of pounds 38m profits next year, the shares trade on a low rating of 10. That seems decent value though MFI has never been a share for the risk-averse.