The Investment Column: Peacocks

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The Independent Online
PEACOCKS, THE high street discount retailer, has timed its flotation well. The combination of the "rip-off Britain" campaign and the supermarket price war is making consumers increasingly value conscious. The result is a polarisation of the high street, between discounters like Matalan and New Look and the more expensive groups. The middle ground, dominated by the likes of Marks & Spencer and Bhs, is struggling.

Peacocks reckons this is a long term trend. Mobile phones, satellite television subscriptions and gym memberships are placing increasing demands on consumer spending so shoppers want to buy their basic clothing more cheaply. Peacocks certainly has a good story. Its 274 stores are largely in secondary high street locations with cheap rents. Head office and distribution costs are kept low by basing them in Cardiff.

Targeting the C2D female shopper, 41 per cent of sales are womenswear, with men's clothing, childrenswear and homeware making up the rest. The plan is to sell at up to 40 per cent below typical high street prices and open around 40 stores annually, up to a total of 600. Peacocks has also signed up with Kingfisher to open stores within its fledgling Big W format.

Trading has been strong with like-for-like sales up by 10 per cent in the last six months and by 22 per cent over the last two years. Operating profits are forecast to rise by 21 per cent to pounds 13m this year. The potential problem is the price. Taking the mid-point of the 150p-170p price range gives a forward multiple of 18 - not cheap in a difficult retail environment. The advisers also reserve the right to raise the price beyond the initial range if demand is strong.

Retail investors have until 23 November to return their application forms. Given the strength in this sector of the high street, the shares look attractive.