The Investment Column: Housing revival helps Colefax

Colefax & Fowler has not had a happy time on the stock market since its launch at 125p a share eight years ago. Even after yesterday's 3p rise to 74p, the upmarket fabrics and wallpaper group still languishes at less than half its original placing price. Profits have never again attained the pounds 4m they peaked at in 1989/90. Costs at the group ran ahead of the market for its expensive products, which retail at anything between pounds 15 and pounds 45 a metre, and they were left horribly exposed in the recession of the early 1990s.

But management, led by chief executive David Green, brother of Carlton's Michael Green, has made a decent fist of digging the company out the hole it was in. The bottom line has grown steadily since Colefax reported losses of pounds 396,000 in 1993 and yesterday it reported a further 20 per cent rise to pounds 1.84m for the year to April.

Costs provided much of the story last year. Although turnover barely moved, rising just 2 per cent to pounds 38.9m, Colefax did well to peg operating expenses at pounds 17.5m. The group was able to shrink its US warehousing operation by combining distribution for the businesses on both sides of the Atlantic in the UK. With distribution still running at 60 per cent of potential capacity, Mr Green is confident he can still grow the business without further cost.

That is lucky, because top line growth should be the dominant theme of the current year. Boosted by the improving housing market at home and more economic confidence across the pond, Colefax has seen a distinct improvement in the climate since March. Sales growth in both markets is currently running at between 12 and 13 per cent and this strength in the core business should be boosted by other developments. The group is now planning to start up in Germany, after a successful first 18 months in France, and is contemplating the launch of a new brand situated in the price bracket between the mid-market Jane Churchill and upmarket Colefax and Fowler ranges.

Profits of pounds 2.4m this year would put the shares on a prospective multiple of 10. Good value.