The Investment Column: Heal's suffers from listlessness

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Heal's has been a dire flotation story. Following its stock market listing in March at 175p, shares in this highbrow furniture retailer shot up to 212.5p within days, but have been tumbling ever since. Yesterday's 4.5p jump to 170p on good results and an upbeat current trading statement hardly compensates for 27 per cent underperformance against the market since its float.

Part of the explanation is a narrow market in the stock. Another is the City's negative attitude towards smaller companies lately. But the real problem is listlessness - a lack of news rather than bad news.

When Heal's floated it said it wanted to add a fourth store to its portfolio as part of a plan to build a chain of up to 10 branches. But eight months later the company has yet to find a suitable site. And if it does not find one within the next two months, the store will not open until after the end of 1998, breaking a pledge in the pre-flotation plan.

Colin Pilgrim, chief executive, and his team have been looking in Glasgow, Manchester and Dublin but have been struggling against high rentals and lack of availability. The problem is that Heal's has failed to expand into the benign, windfall-assisted retail conditions of this year, where house prices in Heal's core South-east market have soared. Stores opening next year face the possibility of higher interest rates, weaker consumer spending and a housing market whose growth is slowing.

All this overshadows a strong trading performance. Pre-tax profits increased by one-third to pounds 2.37m in the year to September. Current trading is also good, with like-for-like sales ahead by 19 per cent. On forecast full- year profits of pounds 2.8m, the shares trade on a forward multiple of 13. Cheaper than the average Heal's napkin ring, but just a hold given uncertainties over the new stores and housing market prospects.