The Investment Column: Stirling Group

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The Independent Online
STIRLING GROUP, the textiles supplier to the troubled retailer Marks & Spencer, clearly believes that if you can't beat `em, you should join them. Its shares have slowly fallen from 63p to 17p in the last five years as it has struggled to compete with rivals in Asia who can undercut it on price. But now it has done a deal with Joe Lewis, the billionaire behind entertainment group Enic.

He is taking a 16 per cent stake in the group as consideration for the sale to Stirling of his Hong Kong-based textiles company, Tamarind. The cash and paper deal, which values Tamarind at around pounds 12m, may seem quite tiny, but the market is getting excited about Mr Lewis's involvement.

Does his arrival herald a turnaround for Stirling?

Unfortunately, Stirling's fortunes rest more on M&S than on Mr Lewis. The retailer has hinted that it is looking for savings in its supply chain. That should not put Stirling's relationship with the company in jeopardy, however.

Indeed, Stirling's deal with Tamarind, which arranges the production of clothing for customers around the world, will give M&S plenty to discuss with Stirling. Tamarind not only sources textiles in Asia, where labour is cheap, but has of late branched into other areas, such as toys and stationery. The company also presents opportunities for Stirling to cross- sell to its existing customer base.

Although Mr Lewis's arrival represents a solid stamp of approval for Stirling, the group's future remains uncertain pending the completion of M&S's reorganisation. Even so, the deal is a sign Stirling is taking action at last to address its competitive disadvantage, and the shares are worth a punt.